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Welcome /  Blog /  2018-09-doc2 UK's rescue proposals use ELI Business Rescue report

2018-09-doc2 UK's rescue proposals use ELI Business Rescue report

In the last week of August, the UK Government has announced new legislative tools that will improve rescue opportunities for financially-distressed companies. See https://www.gov.uk/government/news/new-tools-to-improve-rescue-opportunities-for-financially-distressed-companies. One specific item I wish to highlight, which relates to cross-class cram down, especially the golden rule that secured creditors be granted absolute priority on repayment of debts and that junior creditors should not receive more than creditors more senior than them (the absolute priority rule of APR), unless the more senior class consents to any departure from this principle. Although the APR is used in a number of restructuring regimes around the world, the UK Government has concerns about the lack of flexibility it provides. The Government then, with approval, cites the September 2017 European Law Institute (ELI) Rescue of Business in Insolvency Law report, written by German prof. Madaus and me (p. 72, note 35 in the UK Governments report), see http://www.bobwessels.nl/blog/2017-09-doc3-eli-business-rescue-report-published/, where we develop considerable criticism concerning the inflexible nature of the APR rule, referencing the American Bankruptcy Institute’s Commission to Study the Reform of Chapter 11 (2014) in which the absolute priority rule is described as '... inflexible and often a barrier to a debtor’s successful reorganization’. See for the proposal from the UK Government the site mentioned. It is good to see that the addressees we as authors had in mind indeed are using our report, at least a small part of it (with thanks to Ilya Kokorin, lecturer Leiden Law School).