The suggestions made about court-to-court and insolvency practitioner to insolvency practitioner communication are also, I believe, good. There were a number of radical proposals
submitted in the consultation regarding CoMI [centre of main interests] and the ability to shift CoMI. These do not seem to have found favour: I think that people should be entitled to move CoMI, providing they are observing the rules. Frankly, you risk damaging a business rescue if a compa- ny is limited to its place of registration, which may be in a country that doesn’t have the necessary laws in place. Of course, the end-goal is for every country to possess a good law and to deliver the certainty in the courts that people want. I don’t think the EIR proposals will nega-
tively affect implementation of English-law schemes of arrangement. Policymakers have stipulated you can include pre-insolvency or non-insolvency procedures in the schedules but there’s no obligation to do so. I would be surprised if the UK government put English schemes in because at the moment it is rela- tively easy to get before the English courts. The test is whether you have a sufficient English connection and that can be provided by the finance documents being under English law. That approach is much less restrictive than the CoMI test, which a scheme would have to pass if put in the schedule. I also believe London’s future as a finan-
cial centre is less based on schemes of arrangement and more the strength of the UK’s courts and laws. That is to say, London’s future will be protected by its good courts and good laws. That’s the result of hundreds of years of investment by the UK. That said, I have been left disappointed
by the recent UK Supreme Court decision in Rubin and New Cap, in which the Court took a step back from Lord Hoffmann’s pio- neering judgments which sought to demon- strate the vigour and flexibility of the English common law. The Court identified limita- tions on the extent to which it could recog- nise foreign insolvency clawback judgments and said that to go further required treaties and legislation. I thought that was unfortunate.
Although I understood the point intellectu- ally, I thought it was good that common law was taking the lead in showing the world
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the direction in which we might go. I was disappointed because it was a judgment leaning somewhat towards territorialism rather than universalism. One of the great attributes of the common law is that it can adapt to evolving markets and needs. Of course, the Supreme Court didn’t say that wasn’t possible, just that they felt there were limits in these circumstances. But there were a number of us that felt the common law provisions were sufficiently flexible to be more accommodating than the Court felt able to be.
Do you think Basel III will achieve its stated objectives? The aim of this regulation is, of course, to make all the banks safer so there is less mate- rial risk of systemic collapse. Basel III does seem to introduce an awful
lot of regulation. It means that just at a time when banks are trying to restore their bal- ance sheets and cope with a depressed mar- ket, they are also having to hire huge num- bers of regulatory specialists to deal with this new regulatory load. One can see politically why this has happened but one wonders whether smarter regulation rather than more regulation might be the better move. As it stands, Basel III leaves financial insti-
tutions with two options: either they raise more capital or they lend less. The latter eventuality would be unfortunate. But it should also make holding distressed
debt more expensive, which may make banks more inclined to divest themselves of those loans or more prepared for full-blooded restructurings. Another angle is that, if banks get rid of
the debt and it’s in the hands of someone more entrepreneurial with access to different sources of funds, then real restructurings will become more likely. And then you will find lawyers and financial advisers again doing their job of finding imaginative ways to deliver restructurings with businesses liberat- ed and encouraged as a result. It won’t neces- sarily all be gloom or doom.
The evolution of the US economy has required continual adaptation of their insolvency systems. Do the statutes in place today achieve their objec- tives? There is a full-scale review of Chapter 11 currently underway, led by the ABI
IFLR|RESTRUCTURING & INSOLVENCY
[American Bankruptcy Institute]. INSOL has been asked to work with them on certain recommendations relating to cross-border reform. Even so, I think a lot of what happens
under the US Chapter 11 system has been well thought out. The worldwide stay, for example, has proved very useful. The way that the executory contracts can’t be termi- nated solely on the ground of counterparty bankruptcy is a good thing too. This is so whether or not you think insolvency practi- tioners should be in charge in the event of insolvency as opposed to leaving the debtor in possession. Chapter 11’s ability to eliminate out-of-
the-money stakeholders is very clear and effi- cient too. And that is admirable. In the UK, we often have to move the subsidiaries across into a new vehicle and leave behind the out- of-the-money creditors and shareholders. We’ve developed the pre-pack concept to assist, so we’ve got a perfectly adequate workaround. But take a step back and the Chapter 11 ability to eliminate out-of-the- money stakeholders is more efficient and therefore more attractive. On the other hand, Chapter 11 can be expensive if every single committee has to have financial and legal advisors all paid out of the estate. I was intrigued by the use in the General
Motors and Chrysler cases of sales under Section 363 of the Code. From a UK view- point, with our pre-packs, it’s hard to see what’s controversial about the need to sell quickly businesses that are too big or fragile to afford uncertainty. After all, the best way to achieve value from a business is a sale at best price quickly. There are critics who object that this rather offends against the philosophy of Chapter 11 with its full inves- tigation, dissemination of information and input from the various committees. I should not attempt to swim in these deep waters. But I suspect we might start to see more 363 sales as a cheaper way of protecting business and preserving value. At the moment, there is not a lot of insol-
vency work in the US and there hasn’t been for a while. That may be partly due to histor- ically, extraordinarily low interest rates. Across Europe too, there are a lot of compa- nies surviving in these somewhat depressed times because their interest burden is so low. There are banks too that are concerned about their balance sheets, and hence unwill-
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