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Industry reacts with scepticism to Cameron’s Chapter 11 plans
Introducing Chapter 11-style creditor protection procedures in the UK would be of little value to the print industry, according to industry experts.
The proposals, touted by Conservative leader David Cameron last week, would see companies given time and money to restructure, rather than being forced into liquidation.
In a speech to the CBI, Cameron said: Taking the best aspects of the American Chapter 11 system...will ensure fewer good companies end up in liquidation – and fewer people lose their jobs through no fault of their own.
Chapter 11 in the US enables a company to reorganise through the sale of assets and to access ‘debtor in protection funds’, in order to enable it to trade during its period of creditor protection, but all big decisions must be sanctioned by a court.
However, Nicholas Mockett of Europa Partners said he had mixed feelings about its introduction to the UK.
There are benefactors, particularly in the form of the employees of the company in question and companies that fail through no fault of their own, he said.
However, Chapter 11 interferes with the efficient market. If a company is not attracting sufficient customers or is not able to operate profitably, it needs to exit the industry or there will be overcapacity.
He added that a company in Chapter 11 can sometimes have an unfair advantage over its competitors by shedding debt and emerging with a healthier balance sheet than those that have traded responsibly.
Former chief executive of Premier Paper Martyn Eustace added: For many in the printing industry, I wonder whether such an arrangement is appropriate given the relative straightforwardness of the business and, very often, very clear reasons for a company’s failure: a long period of poor profitability or losses accompanied by a very high level of debt.
CHAPTER 11
• permits reorganisation of failed businesses through, among other things, sale of assets
• all key decisions need court approval
• investment to restructure can be obtained
• companies often in it for more than a year
Cameron: wants US system
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Comments
Colin Thompson - 25 July 2008
This type of protection only guards the weak managed businesses and puts pressure on the `well-managed` business.
Just look at the BPIF with there financial and operational catastrophe.
Turnover - £7.2m
Net Loss - £1.016m
Net Loss as a percentage - 14.12%
Net Loss breakdown - BPIF General £896k and VIP - £120K. With SIG, a deficit of £140k and BPIF Training, unprofitable
Also, the BPIF are already applying for LLP.
Colin Thompson
Cavendish
www.cavendish-mr.org.uk
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