CROSS-BORDER BELLY-UPS

Today, the new rules on cross-border insolvency proceedings, proposed by the Commission in 2012 and adopted by the EU legislators in 2015, will enter into force throughout the European Union.

The new rules aim at facilitating debt recovery in cross-border insolvency proceedings. They will make it easier for businesses to restructure and for creditors to get their money back, by ensuring that collective procedures for cross-border debt recovery are effective and efficient. The Regulation focuses on resolving the conflicts of jurisdiction and laws in cross-border insolvency proceedings. It also ensures the recognition of insolvency-related judgments across the EU.

European Commission First Vice-President Timmermans said:“In a real internal market businesses who need to restructure should not be hampered by conflicts over which national rules apply, nor should national borders be an obstacle for creditors to recover their claims. These new rules will support companies and investment through increased legal certainty. We will need to go further and adopt common EU rules to make sure companies restructure early, as already proposed by the Commission.”

Commissioner Věra Jourová, EU Commissioner for Justice, Consumers and Gender Equality, said: “The new Insolvency Regulation will facilitate cross-border insolvency within the EU and prevent from “bankruptcy” tourism. With the proposed new rules on restructuring and second chances, the insolvency framework will remove barriers for investments and support honest entrepreneurs.”

Key features of the new rules

  • Wider scope: The new rules apply to a wider range of national restructuring proceedings. Certain modern and efficient types of national restructuring proceedings were not covered by the old set of rules, meaning that they could not be used in cross-border cases. It will now be possible to use the modern national restructuring proceedings to rescue businesses or recover money from debtors in other EU countries.
  • Increased legal certainty and safeguards against bankruptcy tourism: If a debtor relocates shortly before filing for insolvency, the court will have to carefully look into all circumstances of the case to see that the relocation is genuine and not to take advantage of more lenient bankruptcy rules. The court will have to check that the debtor is not acting as a “bankruptcy tourist”.
  • Increased chances to rescue companies: The new rules avoid “secondary proceedings” (proceedings opened by courts in an EU country other than the one where the company’s registered office is based). This will make it easier to restructure companies in a cross-border context. The rules at the same time also provide for safeguards guaranteeing the interests of local creditors.
  • Group insolvency proceedings: The new rules introduce framework for group insolvency proceedings. This will increase the efficiency of insolvency proceedings involving different members of a group of companies. In turn, this will increase the chances of rescuing the group as a whole.
  • Linking insolvency registers: By the summer of 2019 there will be an EU-wide interconnection of electronic national insolvency registers. This will make it easier to obtain information on insolvency proceedings in other EU countries.

The European Commission put forward a proposal in 2012 updating the 2000 Regulation to improve the application some of its provisions, so as to enhance the effective administration of cross-border insolvency proceedings. This proposal was adopted by the European Parliament and the Council of the European Union on 20 May 2015 and enters into force today.

In 2014, the Commission has also issued a Recommendation on restructuring and second chance. When the Commission reviewed the implementation of the Recommendation by Member States, it became clear that rules still diverge and remain inefficient in some countries.

This is why the European Commission proposed a Directive on business insolvency in November 2016, which focuses on facilitating early restructuring and second chance.

These two legal instruments – the new Insolvency Regulation and the proposed Directive – will create a coherent framework supporting growth and entrepreneurs.

As their role expands to include ever more nonfinancial demands, CFOs know they must build new skills to lead. Faced with advances in technology and growing responsibilities, many CFOs are bracing themselves for more change ahead—and understand that they must adapt to be effective. There are new demands on CFO time, such as digitizing critical business activities and managing cybersecurity, in addition to traditional finance duties. While these newer responsibilities present opportunities for finance leaders to differentiate themselves—and their companies—from competitors, companies are not yet prepared to manage these challenges.

Most CFOs know it’s no longer enough to play their traditional role. Instead, for CFOs to deliver value as their duties evolve, the results suggest that they must build skills in other areas of the business, play a more active leadership role, and rethink their usual approaches to overcoming external pressures and finding new investment opportunities.

Today’s CFOs are responsible for much more than finance. On average, five functions other than finance now report to the CFO. More than half of CFOs say their companies’ risk, regulatory compliance, and M&A transactions and execution report directly to them, and 38 percent of CFOs are responsible for IT. Some CFOs even manage cybersecurity and digitization, suggesting just how diversified the list of demands on the CFO is.

For the most part, CFOs understand that their roles continue to change and expect to adjust their course. About four in ten CFOs say they spent the majority of their time in the past year on roles besides traditional and specialty finance. Among these other roles, CFOs most often focused on strategic leadership, organizational transformation, and performance management.

What’s more, CFOs themselves and respondents in other roles believe that CFOs can create value in several ways, and not necessarily by fulfilling traditional duties. Eighteen percent of CFOs say that, in the past year, they have created the most value for their companies through their traditional finance work. But others are most likely to cite strategic leadership (22 percent) as the area where they’ve created the most value. Looking ahead, CFOs would prefer to spend less time on traditional finance activities in the next year—and more on strategic leadership (two-thirds of all respondents say CFOs should spend more time here), organizational transformation, performance management, and big data and technology trends.

Still, the nonfinancial responsibilities—including those related to technology—are putting many CFOs on alert. Less than one in three believe their companies have the capabilities they need to be competitive in their digitization of business activities. Fewer than half feel their companies are well prepared or very well prepared to be competitive on their cybersecurity capabilities.

Top executives acknowledge the value that finance chiefs bring to their companies, and CFOs themselves agree. In matters of finance, both groups largely agree that CFOs are very involved members of their teams. They also agree that CFOs should spend more time as strategic leaders in the years ahead.

But as the CFO’s role evolves, so are the expectations that other company leaders have for them. Not surprisingly, then, the data show that CFOs perceive some of their contributions differently than do others in the C-suite. Majorities of CFOs and other C-suite executives agree that their CFOs are significantly or the most involved in bringing deep financial expertise to discussions, focusing group discussions on the creation of financial value, and serving as the executive team’s public face to financial stakeholders. But for activities beyond finance, the results suggest there’s a gap between the leadership that CFOs currently demonstrate and what other business leaders expect of them. For instance, 72 percent of CFOs say they are significantly involved or the most involved executives in allocating employees and financial resources. Yet only 29 percent of other C-level executives say the same about their CFO peers.

CFOs also rate the performance of their finance functions differently than their fellow executives. While 87 percent of CFOs rate their finance functions as effective, only 56 percent of other C-level executives say the same. These groups also report differing views on the challenges that finance functions face. Whereas CFOs are likelier than their peers to cite a lack of resources and skills as barriers to effective finance-function performance, others in the C-suite most often identify a lack of innovation mind-sets.

On the whole, CFOs recognize the need to move beyond traditional or textbook practices. But few say their companies use innovative methods to make decisions. Roughly two in three CFOs say their companies do not yet have the capabilities for agile decision making, scenario planning, and decentralized decision making they’ll need to be competitive in the coming years.

Likewise, many say their companies use basic financial controls in their decision making—but few report the use of more advanced practices. When asked about their capital-allocation processes, most CFOs agree that their companies set capital-expenditure budgets at the project level, use comparable metrics across business units, and track the results of specific projects. These practices support the foundation of a strong capital-allocation process. Fewer CFOs, though, report using tactics that would foster further learning or innovation. Just 30 percent of CFOs say their companies formally review investments made three to five years ago, and one-quarter say they’re using new methods to identify funding opportunities.

Assert proactive and strategic leadership. CFOs perceive some of their contributions to the C-suite differently than other leaders do. One such divergence is the CFO’s involvement in strategic decisions, suggesting that finance leaders have more room than they may think to leverage their expertise and influence—especially since many other C-level executives believe CFOs should spend more time on strategic leadership in coming years. Finance leaders could start by more explicitly articulating the scope of their role, which may help finance leaders increase the engagement and effectiveness of the executive team.

Adopt an investor’s mind-set—and more innovative practices. Many CFOs are aware of their financial stakeholders’ interests, but less than half agree that their companies keep cash scarce—which investors often see as an indication that a company will be disciplined in its investments. The finding highlights the importance of demonstrating capital discipline by translating an investor mind-set into a day-to-day management style. That could also mean adopting innovative finance processes: for example, moving away from a typical, annual capital-budgeting process toward a more agile one, with flexible budgets, quick decision making, and a performance-management system to match. Maintaining a more investor-based mind-set could also help preclude the kinds of misunderstandings that draw the attention of activist investors, which less than one-third of CFOs say their companies are well prepared to manage.

Embrace technological advances. If new technologies and trends are adding to the evolution of the CFO’s role, they also have the potential to make it easier for finance leaders to understand current business complexities. There is a wide range of tools that can help CFOs benefit from big data and the digitization of finance processes; for example, software that automatically completes repeatable, standardized, or logical tasks, such as processing transactions or integrating data to derive business insights. CFOs should increasingly use such tools to lead complex enterprise-resource planning efforts, among other challenges that they are being tasked with managing.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s