On your marks for the next corporate collapse
Saturday 01 June 1996
The idea of the conference was to explore how something similar to the informal rules that govern debt work-outs in Britain - called the London approach - could be adapted to the international scene. The intention is to keep multinational rescues out of the courts and formal insolvency procedures, which are expensive, time-consuming and different in every country. If there was a favourite solution among the experts, it was - curiously enough - a legacy of the Maxwell collapse, which involved many jurisdictions.
Lawyers devised a protocol under which the key creditors agreed among themselves not to fall back on national court procedures but to negotiate informally as a group. In a number of instances when the courts were asked to act, judges made clear they would prefer the creditors to carry on under the protocol rather than fight in court. One way forward would be to combine this with an international code of practice for work-outs.
There is a potential drawback to this approach, however. Putting the biggest bank lenders in charge of any work-out is bound to raise suspicions that they will sort things out in their own best interests, especially now so many companies finance themselves with bonds rather than bank debt. Who will hold the ring?
Eurotunnel provides a possible blueprint. Curiously enough, bankers who originally thought the appointment of independent mediators by the French courts was an outrage are now coming round to the idea that it might be quite a good thing. Mediators and arbitrators are one way forward. A closely related idea which might work better is to put an independent chairman on the steering groups that organise rescues. Many a businessman has the bank-led work-out to thank for corporate survival, including no less a figure than Rupert Murdoch.
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