"I can announce today that we will consult on taking the best aspects of the American Chapter 11 system and give good companies the breathing space to allow them to rescue or restructure the business in the face of the credit crunch." So said UK prime minister David Cameron, then leader of the opposition Conservative party, in July 2008. Scroll forward two and a half years and this consultation is yet to produce any concrete change in how restructuring is approached in the UK. Experts are still sharply divided as to whether it is even necessary at all.
Calls for the adoption of Chapter 11-type bankruptcy protection are the product of the particular nature of this restructuring cycle. The dominance of senior debt during the boom LBO years – and the consequent shrivelling of mezzanine and equity tranches – mean that in a restructuring situation value is mostly breaking in the senior debt. This has resulted in many junior lenders being completely wiped out.
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"I don’t think that we are going to see Chapter 11 in the UK. The market is already well served by a pragmatic system" Matt Prest, Moelis |
"This cycle has mainly been driven by the senior lenders," says Matt Prest, partner at Moelis in London.
