OUTLOOK: Chapter 11 is not a bankruptcy panacea, but it does have its merits
Outlook Would reform of Britain's bankruptcy laws help to correct the power imbalance that exists between banks and the businesses they lend to?
Harold Tillman, the former Jaeger chairman, will urge the Coalition next week to do just that. Mr Tillman blames Lloyds for the fate of the fashion house, whose debt was bought by Jon Moulton's Better Capital, leading to the firm going into administration. It trades today under the ownership of one of Better's funds.
Mr Tillman says he had a plan in place that could have paid off the debt after the firm hit a spotty patch thanks to an unusually warm winter. He was on holiday while the debt was being sold and says he was unaware of what was transpiring.
Lloyds tells a different story, arguing that Better was brought in by the board of Jaeger and that the bank's actions ultimately saved hundreds of jobs, evidenced by the fact that Jaeger is still trading under Mr Moulton's watchful eye.
This very public disagreement between the two sides would not have happened in the US, because Mr Tillman could have sought protection from the bank by taking the company into Chapter 11 bankruptcy. Taking such a step could – we are looking at this with hindsight now – have afforded him the time to put his plan into effect.
The UK's insolvency regime has undergone several important reforms over the last couple of decades. We no longer have a situation where a bank can appoint a receiver to ensure it gets its money before a liquidator takes over to dole out what scraps remain.
Chapter 11 is also no panacea. It can be cumbersome and expensive. Management is required to seek court approval for the steps it wants to take as part of the restructuring. By contrast, an administrator in Britain can grant rapid approval to proposals that management (which is often kept on) might make while acting in the interests of all creditors.
It is also true that the outcomes from Chapter 11 aren't necessarily any better than those from a UK insolvency.
All the same, what Chapter 11 does do is reset the balance of power between debtor and creditor, putting the former in control rather than the latter.
There are many people in the UK who would argue that if debtors fail to pay their bills then they shouldn't be left in control of the ship while it is sinking. However, the government adviser Lawrence Tomlinson's report into Royal Bank of Scotland's Global Reconstruction Group suggests that creditors can easily abuse their power.
It must be stressed that Tomlinson's case has yet to be proven (watchdogs are investigating). But it paints a picture of a predatory unit that tipped viable businesses over the edge. If even part of that is correct then there may be good reason to shift the balance of power in favour of the debtor.
- 1 President of Argentina adopts Jewish godson to 'stop him turning into a werewolf'
- 2 Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing
- 3 The 'Black Museum': After 150 years, public set to see exhibits from police’s grisly crime museum
- 5 Sir Winston Churchill’s family begged him not to convert to Islam, letter reveals
President of Argentina adopts Jewish godson to 'stop him turning into a werewolf'
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing
Syrian teenager Usaid Barho reveals how he escaped from Isis using a suicide vest
Sir Winston Churchill’s family begged him not to convert to Islam, letter reveals
UK weather: 'Coldest night of the year' tonight as freezing temperatures plummet to -10C
Millions of Britons struggling to feed themselves and facing malnourishment
British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
Ukip member gets into Christmas spirit with Union Flag plea to Santa 'for our country back'
Germany anti-Islam protests: 17,000 march on Dresden against 'Islamification of the West'
Nigel Farage: Ukip leader named 'Briton of the year' by The Times
Douglas Carswell tells Ukip to stop blaming foreigners as youth poll shows Nigel Farage is even less popular than Nick Clegg
iJobs Money & Business
Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...
Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...
Not specified: Selby Jennings: SVP Model Validation This top tiered investment...
Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...