Torys suggest implementation of insolvency laws for businesses that would mirror US-style Chapter 11 rules, which would allow firms to manage themselves out of financial ruin instead of entering administration
Battle lines have been drawn following suggestions from the
Conservatives that
insolvency laws for businesses could be implemented that would mirror US-style
Chapter 11 rules.
The controversial rules, which allow firms to manage themselves out of
financial ruin instead of entering administration, have been widely criticised
for giving way to imprudent management.
Tory leader David Cameron said that the changes would give companies
‘breathing space’.
But the argument as to whether or not the rules should be adopted concerns
accountability. Should a board – which has led a company into financial hardship
– be given carte blanche to implement changes in an effort to rescue the
business, if it could not implement preventative changes in the first place?
James Money, director of restructuring at Smith & Williamson says:
‘Someone has to keep an eye on what the directors are doing so that the
directors can be held accountable for what has happened.’
Other commentators have slammed Chapter 11 for its potential to lead to
irresponsibility, over-expansion and a general lack of prudence.
Yet there are those who support the US approach with the view that the UK’s
current insolvency laws for business need an overhaul.
‘It is past time for insolvency to reach the top of the government’s agenda,’
says Gilbey Strub, managing director of the European High Yield Association.
‘Reform of the current insolvency regime will save jobs. It will allow
fundamentally sound businesses to quickly regroup and restructure themselves as
sustainable, profitable enterprises that contribute to the British economy.’
Cameron says the new plans are about ‘taking action’ to try to save jobs
during tough economic conditions.
But critics observe that few well-managed companies ever end up in that
situation.