IT companies to choose Chapter 11
Struggling companies in the UK technology industry could cause 'turmoil' in the insolvency sector by applying for Chapter 11 bankruptcy protection.
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A number of companies have started to look into the procedure, following aggressive campaigns from law firms that specialise in insolvency, as it offers a more attractive avenue than UK administration.
‘I see the Chapter 11 versus administration debate as being particularly relevant and lively in the IT, computer and telecoms sector,’ said PKF corporate recovery partner Nitin Joshi. But he added that experts were unsure of the consequences. ‘There is incredible turmoil in our industry as to how the courts are viewing these applications.’
Wayne McArdle, a partner at law firm Gibson Dunn & Crutcher, which promotes Chapter 11 as a tool for European company restructuring, agreed. ‘Chapter 11 works in cases such as telecoms companies where assets and creditors are multi-jurisdictional,’ he said.
But experts have warned it will be difficult for UK companies to get creditors in this country to agree, as many do not like the control the US procedure gives debtors. ‘Creditors will go to court and contest it,’ said Joshi.