TITLE

GOING WEST

AUTHOR(S)
Morris, Howard
PUB. DATE
January 1999
SOURCE
Accountancy;Jan1999, Vol. 123 Issue 1265, p78
SOURCE TYPE
Trade Publication
DOC. TYPE
Article
ABSTRACT
This article compares the insolvency law and practice in the U.S. and Great Britain. The bankruptcy laws in the U.S. are not so pro-debtor as popularly thought. And Great Britain's insolvency laws are not so anti-debtor as they were before their great reform in 1986. But Great Britain differs in three important aspects. First, it has traditionally given secured creditors a superior position to unsecured creditors, who in turn rank ahead of the debtor company and its shareholders. Second, U.S. law does not share Britain's concept of receivership or the floating charge. In Great Britain, a receiver can take control of an entire business, can trade the business on and sell it as a going concern. While receivership saves businesses, the corporate shell within which the business used to operate is discarded and so the shareholders who invested in the business will have no stake in its future. The U.S. focuses much more on saving the company, as opposed to the business. Third and most important difference is cultural. In the U.S., the company management in a Chapter 11 stays in control, albeit supervised by committees. This means that management and shareholders can continue to have a stake in the struggling business and its rescue. In Britain, facing up to reality in that situation can mean threatening the managers' jobs and the shareholders' investment, a powerful disincentive.
ACCESSION #
17578354

 

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