Further radical changes to the insolvency rules are being considered by ministers.
Schemes of Arrangement appear to be set for a radical overhaul allowing vulture funds (distressed debt investors) to overrule high-ranking creditors, such as traditional banks, if judges can be persuaded that it was in the best interests of creditors.
Under the proposals a mechanism called “cross class cram down” would be introduced to bind dissenting creditor classes.
It is believed that company finances would be restructured more quickly.
The recent turmoil in financial markets has presented a huge opportunity to funds buying loans at a steep discount. It is believed that the proposals would prevent ransom creditors holding out and blocking a restructuring even when they would receive more than they would recover in insolvency which would be good for companies, employees and creditors.
It is a potentially innovative approach if it could be shown that the dissenting creditors would be no worse off than in, for instance, liquidation.
The cross cram down has been lobbied for by people in the restructuring community for some time