BusinessBusiness RecoveryTransatlantic row erupts over Chapter 11

Transatlantic row erupts over Chapter 11

A transatlantic row has exploded over insolvency jurisdictions after a UK company, whose assets and creditors were British, opened a bank account in the US and applied for Chapter 11 bankruptcy protection.

Link; Chapter 11 under fire

Shipping company Cenargo applied for the protection in the US but was then faced with complications when its main creditor, Lombard, called in Alan Bloom of Ernst & Young in February to take the company into administration.

A US court ruled that this action ignored the protection of Chapter 11 and held that both E&Y and Lombard were in contempt. Mark Andrews, partner at Denton Wilde Sapte, the law firm acting for E&Y and Lombard, said it was ‘a mess’.’We are hoping the court will drop the contempt charges,’he added.

He said the crisis arose because debtors were put in complete control by the Chapter 11 order, while UK creditors were shut out of the restructuring of the company.

The case has thrown up the problems caused by trans-jurisdictional insolvency cases and experts are now concerned that law firms championing Chapter 11 as a new way of restructuring European companies are ignoring the dangers.

Simon Freakley, Kroll’s global head of corporate restructuring, said that if a company did not have agreement from UK creditors, they would ‘take remedial action’.

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