Business Rescue and Insolvency
Insolvency is sometimes inevitable but on occasion it can be brought about by poor behaviour on the part of the main lender. There is currently no mechanism in insolvency law to deal with this situation, leaving businesses at risk of asset stripping and the insolvency system open to misuse.
Obtuse contracts, onerous covenants, the lack of good faith in contractual relationships, unregulated LPA Receivers in England and Wales, and the lack of any judicial oversight of the insolvency process mean that, should a lender wish to exit a particular market or cease a particular relationship, there are no real barriers for it and no adverse consequences should it act unfairly during that process.
Furthermore, the positive language of ‘cleaning up the balance sheets’ is masking the destructive practice of selling off swathes of commercial loans to unregulated, offshore ‘vulture’ funds whose primary focus is asset stripping. Insolvency law as it stands allows this practice to happen, and our private business owners, employees and creditors (including our councils and HMRC) pick up the bill for this practice. The law as it stands makes the UK an attractive place for ‘vulture’ funds to choose to do business which will ultimately affect the competitiveness of the UK economy.
The impact on individuals and the wider economy of the issues we are highlighting cannot be understated. Job losses, personal bankruptcy, mental health problems, suicide, family break-ups and loss of revenue to councils, HMRC and others, are all direct effects of the current system.