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Does Insolvency Law Need Reform?

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  1. Introduction
  2. Discussion
  3. Does Insolvency Law Need Reform?
  4. Conclusion

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 This method is considered by many as outdated.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. [...]

[...] The Insolvency law as it is, is unfit to manage the kind of insolvency that we would soon experience which will include highly geared, international companies or multinationals with very complicated capital structures of which would require major restructuring as the only solution. Currently, the U.K. insolvency law has no dedicated proceeding meant for restructuring financially distressed companies as it is in Germany and France. The EA 2002, which was meant to ensure adequate, and increased utilization of administration in company rescue have failed in that respect. [...]

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