Chapter 11 under fire
Chapter 11, the popular US insolvency procedure, has come under attack for being unfair and allowing some companies to escape their debts, so they can compete more aggressively in their marketplace.
The criticisms come as Chapter 11 applications – which provide protection from creditors and allows troubled businesses to raise untouchable bank loans – reach record numbers, but also prompt deep-seated worries.
Critics say companies are using chapter 11 to renege on contracts as well as eliminate borrowings.
Among the dissenters are Ivan Seidenberg, CEO of US telco Verizon, who has claimed that Chapter 11 has been used by some big names to ‘cleanse their sins, but then drive prices down’.
British Airways CEO Rod Eddington has also levelled accusations at the insolvency procedure by saying that an airline that recently entered Chapter 11 could now compete more aggressively on price.