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A conservative approach to insolvency

There may be some flaws in the current insolvency system, but fundamentally its provisions are sufficient and the proposed reforms are not necessary; in fact they could make the process more cumbersome, says Mark Cullingford

14 October 2008

The press release of a speech to the CBI on 15 July by David Cameron stated that “According to independent experts, if the current credit market conditions continue, it is likely that more companies will be unable to obtain new finance, creating difficulties and potentially forcing companies into administration or liquidation....Many people believe that the existing insolvency procedures are ill-suited to the rescue of a company and its business as a going concern.”

David Cameron comments that informal restructuring is undermined because there are no formal statutory procedures and “stakeholders may use their veto to hold the company (and other stakeholders) to ransom, knowing that the only alternative to the concessions which they are demanding will be the administration or liquidation of the company”.

He says that “fundamentally sound companies risk being dismantled. That would be bad for the economy, bad for the company and its shareholders, and bad for emp...

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