UK government urged to update insolvency law
The proposals address the UK’s lack of insolvency proceedings dedicated solely for restructuring distressed companies. “English insolvency law is unsuitable to manage the type of insolvency that will soon become common: highly-geared, cross-border companies with complex capital structures for which major restructuring will be the only solution,” EHYA states in a letter addressed to the Treasury. “Unlike many other countries, the UK has no insolvency proceeding dedicated solely to restructuring financially distressed companies,” EHYA added. Gilbey Strub, EHYA’s managing director explained, “Although the Enterprise Act 2002 was meant to increase the use of administration for company rescue, academic studies have widely concluded that it has failed to do so. Instead, nearly all large restructurings in the UK continue to be effected on an out-of-court, ad hoc, consensual basis, without a predictable legal framework or meaningful precedent to guide the process.” The association highlights the inadequacy of the law in today’s environment and said, “Out-of-court restructurings may have worked, albeit imperfectly, in the past, but are not adequate to address the challenges of the present. The advent of private equity has brought an increase in leverage and intricate capital structures which will require a more robust framework.” EHYA also points out that an unwarranted and undesirable side-effect of the legal vacuum in the insolvency regime is an increased risk of widespread economic instability. The association’s European Insolvency Reform Committee which worked on the proposals urges the government to act now and sets out a set of relatively minor amendments to existing law which will have a combined effect of preserving value for stakeholders in distressed companies to the maximum extent possible. The full submission can be read at http://www.ehya.com/docs/PressRelease/Letter_to_Treasury_Feb08.pdf
•Date: 29th February 2008• Region:UK •Type: Article •Topic: BC general
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