European High Yield Association Praises UK Shadow Chancellor’s Insolvency Reform Proposals - “Time For Insolvency To Reach Top Of Government’s Agenda”

The European High Yield Association (EHYA), an affiliate of the Securities Industry and Financial Markets Association (SIFMA), today praised the Insolvency Reform proposals issued by Shadow Chancellor George Osborne. The proposed reform would create a new fast track judicial process for distressed companies. This new formalised “rescue” framework closes a gap in the existing insolvency regime, which leaves company rescue to informal, ad hoc agreement among lenders and investors. The new framework would improve the efficiency and fairness of corporate restructurings for larger companies with complex capital structures.

“The fallout from the credit crisis will ultimately be a round of corporate insolvencies as a consequence of tightened lending. As market conditions continue to decline, highly leveraged companies with complex, cross-border capital structures are likely to head towards administration, which tends to mean liquidation. Distressed companies wanting to avoid administration and survive currently pursue an informal, out-of-court restructuring, but this approach will no longer work given the extraordinary growth in complexity of capital structures and diversity in lenders since the last downturn,” said Gilbey Strub, managing director of the EHYA.

Strub added, “It is past time for insolvency to reach the top of the government’s agenda. We are pleased that the Shadow Chancellor proposals are in line with our own proposals, issued in April this year, for an alternate process that is grounded in a legal framework providing stability, predictability and efficiency. Reform of the current insolvency regime will save jobs. It will allow fundamentally sound businesses to quickly regroup and restructure themselves as sustainable, profitable enterprises that contribute to the British economy. Modernising the insolvency laws is the most concrete step the government can take at this time to counter the downturn and to stimulate the provision of debt capital for high growth companies.”