Insolvency in the News: German debtors, pre-packs and fraud
The Sunday Telegraph carried an interesting story yesterday on the attractiveness of schemes of arrangement to German creditors. I recently examined the wider area of schemes of arrangement in two articles:
- Tribe, John and Zhao, Jingchen (2010) Companies Act 2006 schemes of arrangement in comparative perspective. Butterworths Journal of International Banking and Financial Law, 25(1), pp. 15-18. ISSN (print) 0269-2694
- Tribe, John (2009) Companies Act schemes of arrangement and rescue: the lost cousin of restructuring practice? Butterworths Journal of International Banking and Financial Law, 24(7), pp. 386-392. ISSN (print) 0269-2694
These are available here. I relation to the themes discussed in the Sunday Telegraph article you could argue that England and Wales schemes could have an effect on German creditors because of the 75% voting rule for sanctioning a scheme, i.e. 25% of creditors wishes can be discounted in favour of the majority. This may include some German creditors, hence the decision to come to England and Wales to take advantage of the Companies Act 2006, s.895 provisions. In terms of the general attracting people here point and the "bankruptcy brothel idea" you could argue that the issue is slightly different. Bankruptcy and winding up (for companies) are both terminal procedures. A scheme of arrangement is the very opposite, it is all about hiving off viable parts of the business to ensure continued success. If England and Wales is known as a jurisdiction that allows that kind of restructuring and consequent continued trading then I think this is good news. It means we are aping a form of Delaware effect, i.e. attracting foreign business. This is good news for all the lawyers, accountants, courts, etc who will be involved in the transaction. In the wider sense it might also lead to more incorporation here in the long run because of our business friendly regimes.
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