BusinessBusiness RecoveryUK insolvency law threatens London’s status as financial hub

UK insolvency law threatens London's status as financial hub

UK insolvency rules not up to speed with the changing face of ownership of companies, as hedge funds take over from banks in using debt to buy companies

UK insolvency rules must be changed to make sure London keeps its status as a
leading financial centre.

The European High Yield
Association
has warned that UK insolvency legislation must be
updated to handle complex restructuring projects when the economy suffers its
next downturn, reported the FT.

In a letter to the
Treasury
, the association said that the legislation must ease the power it gives to
customers and suppliers when a company enters administration, as well as taking
away the right to veto a restructuring for shareholders and creditors without an
economic interest in the deal.

It warns that a small number of banks no longer dominate the debt-funded
buy-out market, with a mass of hedge funds more influential.

‘The wider dispersion of debt may make traditional workouts unachievable,’
warned the association.

Deloitte
reorganisation services partner Neville Kahn previously told
Accountancy Age that hedge funds were likely to be the first creditors
to challenge administrators for selling a company using the controversial
‘pre-pack’ method.

Further reading:

Hedge funds to challenge pre-pack value

ICAEW provides update on insolvency member
numbers

Insolvency Practitioners’ Association to
regulate IVAs

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