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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

29 JUN 2011

Insolvency items in the news: Katona and imprisonment for debt and 'new' schemes?

In an echo of debtor treatment in a bygone age Ms Kerry Katona has been warned that she may face imprisonment, according to the Mirror. She has apparently been failing to keep up with monthly payments to her creditors. These were agreed as part of her personal insolvency arrangements. Unsurprisingly the paper fails to mention why jail is a possible outcome for the wayward star.

Elsewhere, The Lawyer is carrying and interesting article on the virtues of schemes of arrangement - sounds familiar! (see further: 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 & 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.

The Lawyer piece does bring the story up to date with an interesting list of recent high profile schemes. The authors contend that, "The English law scheme of arrangement has recently re-emerged as the tool of choice for those engaged in complex financial restructurings, in particular where a consensual solution has not been capable of implementation." Whilst the former is certainly true, as noted in the articles cited above, can the same be said for the second part of this statement? A lack of moratorium has been cited as a principal drawback for scheme use. Surely consensual behaviour is therefore a pre-requisite with a scheme? The authors also go on to note, "...the scheme of arrangement looks set to remain a popular restructuring option for both English and overseas companies, in particular where the involvement of divergent creditor groups." Is this 'divergent creditor group' issue the reason why a moratorium is needed for such schemes? Different creditor interests will surely be the downfall of any consensual approach to restructuring practice. The more creditors that are involved and the greater the creditor's dominance and diversion of interests, the harder the IPs job will be. 

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