Insolvency, Law, Reform
Time and again, companies face financial difficulties that threaten to lead such investments into closure. This should not be allowed to unnecessarily take these companies that are faced with financial difficulties to the wall. There are laws that have existed in various European governments that are meant to govern and outline procedures and steps that can help in ensuring companies faced with insolvency do not close up. This involves putting such companies under administrative receivership; this implies putting the whole company under the watch and management of a secured creditor. This method is considered by many as outdated. Over the previous few years, laws have been enacted that are aimed at reforming insolvency laws in some of these countries such as the U.K., Germany, and France.
This essay looks at and analyzes some of those proposals, enactments, consultation reports, and reviews as regards to the insolvency law so as to ascertain whether this law is fit for the purpose as it currently is. In so doing, measures will be solidly detailed that are meant to offer struggling, but feasibly viable ventures a chance of working their way out of such difficult situations.
[...] Creditors are also guaranteed higher and better returns. The challenge, however, is whether the balance in the insolvency regime of the U.K. should be shifted to being debtor- friendly as well rather than being only creditor-friendly. In 2002, the U.K. government enacted the Enterprise Act of 2002 which was the advent of a new corporate insolvency law regime. This was entirely bolstered by the consideration by many that the then insolvency law era was not equitable and adequately rescue-oriented. In order to change that, the Enterprise Act of 2002 implements several modifications and changes to that era. [...]
[...] In so doing, almost all large company restructurings in the U.K. are continuously affected on a consensual basis, an out-of-court, ad hoc without any meaningful precedent or legal framework to guide the process. [...]
[...] However, the administrator is mandated to perform functions that would ensure better returns for the creditors that would be achieved if the company winding up[3]. According to some insolvency specialist and various consultation and review papers, the Enterprise Act of 2002 was not an all-inclusive and radical reform of the administration procedure. Accordingly, they point out that, the Act failed in several ways such as, Introducing the concept of Debtor staying in possession (DIP) which is in the U.S. insolvency and administration bankruptcy procedure. Introducing the priority financing arrangement for DIP as it is in the U.S. [...]
[...] government embarked on putting into place mechanisms that will not only ensure successful administrative receiverships, but also the balance of the insolvency law to be debtor-friendly and creditor friendly. Most of these law reviews, consultations, and proposals have aimed at exploring ways in which the government have attempted and should attempt to better develop the insolvency law and practice so that where company rescue attempts are made, all those with a stake in the company being rescue, benefit from such a process. This ensures that economic and fiscally viable companies survive in the long-run. [...]
[...] At the same time, new safeguards for consumers will be promoted. According to the Enterprise Act several measures aimed at reforming and restructuring corporate insolvency were introduced. These included an administration procedure that is streamlined, are accessible and efficient so as to ensure successful rescue of viable ventures. Secondly, the administrative receivership is abolished to a certain extent[2]. Finally, the act also introduced measures that would ensure new powers are introduced so that certain insolvency proceedings are extended, with changes, to industrial and Provident Societies, foreign companies, and friendly societies. [...]
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