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Capital markets seek clarity on insolvency carve-out

UK proposals on the reform of insolvency procedures take account of the special needs of securitizations. There is, though, uncertainty that all types of such deals are covered.

With more corporate failures likely, the publication of the UK government's white paper on insolvency seems timely. The government has listened to the views of those who believe that the present regime is too pro-creditor and has suggested initiatives designed to move the UK regime towards a more debtor-friendly slant.

One of the main changes proposed in the policy document is that administrative receivership be replaced by a revised administration procedure in which the interests of all creditors (including unsecured creditors) will be considered. This procedure would be subject to the overview of the courts in a more public and transparent process. Neil Cooper, an insolvency and business recovery specialist with law firm Kroll Buchler Phillips, says: "The abolition of the right of a debenture holder to appoint an administrative receiver because occasionally a few banks may have misused this right is rather like banning cars because some people may have driven them recklessly. One of the important aspects of this right is that it gives banks an incentive to monitor a company. If they don't have a vested interest in doing that, then they won't do it."

The right of secured creditors to enforce their security by appointing a receiver goes back to the mid-19th century when the floating charge was created.

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