Yukos' Chapter 11 ruling inspires UK companies
Russian oil company Yukos' successful attempt to file for bankruptcy in the US could prompt ailing British businesses to follow suit and look for the added protection offered by US bankruptcy laws.
Link: Yukos hit with second tax blow
A Houston court ruled in favour of the oil company, even though it did not have any US business interests beyond holding a bank account.
Stephen Grant, a business recovery and insolvency expert at Wilkins Kennedy, said filing for bankruptcy across the Atlantic could be appealing for UK-based struggling businesses.
US Chapter 11 bankruptcy regulations allow directors to stay in control of a company instead of handing it over to administrators, as would happen in the EU, according to Grant. Directors would be less likely to act in the interests of creditors than independent administrators would.
‘There are regulations governing how directors in charge of bankrupt companies in the US should act, but it seems that Yukos filing for bankruptcy in the US was a case of jurisdiction shopping,’ said Grant. ‘The company looked around for the most favourable bankruptcy regulations to protect its assets. This ruling could see UK companies doing the same thing.’
EU bankruptcy regulations only allow proceedings to be instigated in the jurisdiction where a company has its main business interests and can be accessed by creditors.
If UK companies choose to avoid these regulations, creditors may mitigate their exposure to this risk by increasing lending costs.