Insolvency Across Borders: The European Union
As more and more companies continue to reach outside the United States to do business, the need for information on how different areas of the world deal with financial issues is at an all-time high.
Regulation on matters like insolvency and disputes vary greatly between countries, which can complicate the risk factor in your portfolio. Having regulation information before agreeing to terms, using caution, and monitoring -- not only the business in question, but the country as well -- can make the difference in maintaining a healthy international portfolio.
In this series, we speak with Nicholas Stern, Editor-in-Chief at Business Credit magazine, an NACM publication, and author of the article, “Insolvency Rules Abroad: A Look at the Latest Trends in Key Markets.”
In separate installments, we’ll look at three important international markets, starting with the European Union. With the recent tumult of Brexit, credit managers must be alert in regard to imminent financial danger when doing business with companies in the EU.
The EU Does Not Have Consistent Insolvency Regulations
Doing business with the United Kingdom is one thing -- their insolvency regulations are clearly stated and readily available on the government website, which is good news for U.S. corporations -- but the EU doesn’t have across-the-board regulations, and doing business with other countries in the EU could look quite different.
“Look at each country individually,” advises Stern. He notes that the EU, founded in 1993, is currently trying to implement a blanket insolvency directive, but gaining approval and implementing the initiative is a lengthy process. He warns credit managers should remain vigilant and do their research until the directive is solidified and implemented.
Follow the Progress of the EU Insolvency Directive
The insolvency directive is destined to create some cohesion when it comes to insolvency regulations, and following the progress will ultimately be helpful in your decision making. “You can use the information to get a general sense of how insolvency dealings are resolved,” said Stern.
Yet he cautions that this is not enough information to make credit decisions within countries in the EU. Instead, credit managers should have the information up front, before any terms are set, about how each individual country does business and what their insolvency regulations look like in action. Consider the following questions:
- How are disputes resolved, and where?
- What treaties/agreements exist between the U.S. and this country in particular?
- How much weight do certain filings like judgements or liens hold in this country?
- What is the average repayment rate?
Armed with this kind of information prior to a formal credit agreement, credit managers will be better equipped to set appropriate terms. They will also have a more concrete understanding of how to respond – how to file a claim, what paperwork is needed, which legal experts to consult and government offices to go through – should insolvency become an issue.
Constant Monitoring is a Must
As with any company in the U.S. or abroad, changes in financial health are usually documented long before insolvency hits. After obtaining information about how insolvency is handled on a country-by-country basis, monitoring the health of each company can help you mitigate risk before it hurts your international portfolio.
A service that provides updated financial information, as well as access to timely news, is the best way to stay on top of the financial health of the companies that you do business – or are considering doing business with – in the European Union. Considering each country individually, asking the right questions and doing research ahead of a formal agreement can help you set a strong foundation for mitigating risk.
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