US bankruptcy aid won't work in UK, says BPF
Published: 07 October, 2009
LONDON: The British Property Federation (BPF) has dismissed plans to introduce American-style Chapter 11 bankruptcy protection for UK firms as 'misguided' because it says the British legal system is not geared up to oversee it.
Chapter 11 is a US form of administration where businesses are protected from their creditors under the supervision of a court. The idea is to allow a company to restructure, protecting jobs and the value of business assets. The process has allowed many big US firms to maintain their market position despite a failing business while new financing is found.
The Conservatives mooted Chapter 11 last summer as a solution to current concerns about the insolvency process. A recent consultation by the Insolvency Service – 'Encouraging Company Rescue' – also proposed similar changes.
However, Ian Fletcher, BPF's policy director is not convinced. "Now is not the best time for reform because emotions are running high and we need to evaluate how the 2002 reforms have performed during the recession.
"Property companies and competing retailers have had concerns with aspects of the current system, which seems to place undue weight on propping up failing businesses and not enough on the consequences for healthy creditors and competitors.
"We would not like to see Chapter 11 reforms, because the British legal system is not set up to handle it. Neither do we like current Government proposals to give new secured creditors super-preference at the expense of landlords' rent deposits. That is a sure-fire way to limit small business access to property in the future. All political parties should be considering reform, but in the cold light of experience."
The BPF's response is in response to Westfield chief Peter Miller's criticism of the retail rescue culture. "It sets a very negative precedent for the market," he said.
DTZ head of retail, Martyn Chase, echoed Mr Miller's commented. "European countries look on us in complete wonderment. Abroad, they have to face up to reality; they don't just walk away from obligations. You either keep trading or you go bust, that's the reality of life."