* With apologies to Horace Greeley (1811-1872) “Go WEST, young man, and grow up with the country”
Toys ‘Я’ Us, the US based emporium of all things Childhood, announced that it was seeking “Bankruptcy Protection” in the US in mid-September (BBC News, 2017). Good news for Santa Claus is that trading is unaffected around the world but the US Insolvency system (Chapter 11) allows a company to create breathing space whilst it sorts out short-term issues such as cash flow, new loans, restructuring etc. without creditors being able to (legally) pursue their claims for repayment.
UK Insolvency Systems
The UK has the administration procedure to deliver a breathing space but experience suggests that companies often leave it too late to take full advantage of it.
Differences in local laws can give rise to the perception that some legal systems and insolvency systems are more favourable to debtor corporations and managers. In some cases, this can give rise to “Bankruptcy Tourism”. This is where companies change their domicile to either avoid insolvency in their own country or access a “softer landing” if reconstruction or failure looms. Amongst the world’s major cities London is the destination of choice for many.
London benefits from many of the “clustering” factors that result in pockets of expertise being located in specific regions. London is an historic centre of legal expertise, it boasts excellent resources and, of course, the relevant legislation to enable company survival through short-term problems.
However, the global insolvency scene is converging.
Not only is there formal convergence in laws – with or without BREXIT the UK’s legislation will still look remarkably similar to that in the EU, but it will also echo the US and many Commonwealth countries and former Imperial Colonies will look to the UK to set precedents in legal cases.
In addition, the nature of financial, financial and professional services markets is similar in most major centres. This is a key component of how local legislation is interpreted and the sort of advice given by bankers, consultants, and accountants to beleaguered firms.
Finally, bankruptcy law should reflect the will of society, ordinary people who suffer through bankruptcy because jobs are lost, industries contract or, on a personal note, lifestyles are curtailed. Many societies reflect a desire for the practical nature of rehabilitation, the efficiency of restructuring rather than liquidation of failing companies and the need for continuity in business.
Combine the interlocking drivers of law, markets and the people who inhabit and interpret them and a conclusion that soon you will not need to “go west” to go bust – just stay at home, and whilst the nomenclature will be different the overall effect will be the same.
BBC News, (2017), Toys’R’ Us (sic) files for bankruptcy protection in US, Available at http://www.bbc.co.uk/news/business-41316205
Pond, K. (2003) Investigating personal insolvency: a progression of studies into individual voluntary arrangements [pdf]. Available at: https://dspace.lboro.ac.uk/dspace-jspui/bitstream/2134/3039/1/KeithPondPhD.pdf
QLTSchool, (2014), 5 Reasons Why London Remains the Legal Capital of Europe [blog], Available at: http://www.qlts.com/blog/working-in-london/5-reasons-why-london-remains-the-legal-capital-of-europe