Insolvency: Insolvency lessons from across the water
The UK should adopt the US approach to insolvency, write Lyndon Norley and Jason Granite, which leaves the management of a company in place to tackle debt problems and allows far greater scope for raising capital to turn around struggling businesses
We have now waited almost 12 months for signs of change since the results of a joint Treasury and Department of Trade and Industry working paper were published, entitled Company Rescue and Business Reconstruction Mechanisms. Although not having the most instantly engaging of titles, the paper did at least address the issue of whether the insolvency laws in the UK were too creditor-friendly and too hostile to debtors.One year on (and several drafts of the Insolvency Bill later), we are still waiting. Many of the questions raised in that initial review appear to have gone unanswered, despite pronouncements from the Government earlier this year, of “turnaround”, a new rescue culture encouraging enterprise and tolerating honest failure. The new Insolvency Bill, which is due to come into effect shortly after its second read-ing at the end of October, unfortunately falls far short of expectations. Why should the UK’s insolvency regulation appear to be so punitive to debtors compared to what might be regarded as a far more enlightened approach taken in the US, which encourages continued trading?
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