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Bankruptcy Protection – is the USA the debtor’s friend?

28 September, 2018Keith Pond

Friends-boy-girl-togetherWhich country has the friendliest insolvency practice?

Well, that very much depends on your perspective.

Creditor or debtor friendly?

Creditors, including banks, may well opt for “creditor friendly” regimes such as the UK whilst managers and directors, and even shareholders, may choose the USA’s more “debtor friendly” system.

The USA ranks as one of the “best” insolvency regimes in the World Bank league table (World Bank, 2017) as reported in a previous insolvency blog (Pond, 2018).  It has a reputation, however, of protecting debtors, allowing its business focused Chapter 11 (Title 11, Bankruptcy Code) and personal Chapter 13 to be invoked to assist “reorganisation” of business or personal affairs in order to avoid bankruptcy.

UK and US - the difference is small

It is instructive, therefore, to list the key features of the primary UK and US regimes aimed at the reconstruction or rehabilitation of business or, at least, a more orderly realisation of assets.  The following table will help:


UK Administration

US Chapter 11


Insolvent corporates

Any business, however constituted and whether insolvent or potentially insolvent.


1 year – can be extended but proposal must be submitted within 3 months.

Up to 18 months with reorganisation plan submitted within 4 – 5 months.

Control during procedure

The Administrator

The Debtor

Protection for debtor

For duration of Administration Order – from all legal proceedings for recovery of debt.

For duration of Chapter 11 proceeding – from all legal proceedings for recovery of debt.

Protection for creditors

Priority of creditors normally maintained

Absolute priority of creditors must be maintained

Scrutiny of the plan

The creditors and shareholders

The court, creditors and stakeholders

Acceptance by stakeholders

Simple majority by value of creditor claims.

Two thirds majority of creditors by $ value and at least one creditor per “impaired class”.

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Listing the features of UK Administration and US Chapter 11 in this way does show striking similarities and even, in the case of required creditor acceptance, a more liberal requirement in the UK.  The big difference, however, is that the UK Administrator, typically under the auspices of a floating charge, takes control of the company’s assets.  In the USA it is the directors and manager who retain control during the process.

Trust me....I'm a company director

Is this all that is needed to promote the “debtor friendly” accolade?

Well, yes.

Imagine the erosion of trust that exists between the debtor company and its ordinary creditors as insolvency looms.  In the US that company can gain protection from Chapter 11, leaving the creditors to watch as assets are further eroded in some cases.  In the UK the creditors can rely, at least, on an officer of the court/Insolvency Professional taking charge.

And yet…

USA comes in 3rd as opposed to the UK’s 14th in the World Bank (2017) rankings, despite lower costs and higher returns in the UK.  The advantage of the USA in the league table comes entirely from the access US corporates have to insolvency and legal advice and the transparency of the legal system.

So, it really does rely on your perspective.


CRG Financial (2018), Bankruptcy Process, available at: https://www.crgfinancial.com/bankruptcy/

Pond, K. (2018), Insolvency Blog: Where in the World has the best business failure regime?, LIBF, available at: https://www.libf.ac.uk/news-and-insights/insights/detail/2018/01/11/Insolvency-Business-Failures

World Bank (2017) Doing business: resolving insolvency [online]. Available at: http://www.doingbusiness.org/data/exploretopics/resolving-insolvency.