Control and Cooperative Rescue - An Anglo-American Evaluation
![handle is hein.journals/incolq56 and id is 521 raw text is: CONTROL AND CORPORATE RESCUE-AN ANGLO-AMERICAN
EVALUATION
GERARD MCCORMACK*
Abstract This article compares and contrasts Chapter 11 of the US
Bankruptcy Code with the UK administration procedure under the
Insolvency and Enterprise Acts. It focuses in particular on who runs a
company during the restructuring process-debtor-in-possession or manage-
ment displacement in favour of an outside administrator. Various reasons
have been given to explain the US/UK divergence in this respect including
differences in entrepreneurial culture and differences in the lending markets
in the two countries. The article suggests that the divergence cannot be
reduced to a single factor but instead implicates a complex web of circum-
stances.
I. INTRODUCTION
There are fundamental differences in US and UK insolvency law. These
differences are often encapsulated in the maxim that while the US law is pro-
creditor the equivalent UK law is pro-debtor.' It is suggested that this state-
ment is, at best, a potentially misleading over-simplification. Both countries
have legislatively declared reorganization alternatives for ailing companies
as well as liquidation provisions. The countries differ, however, in some
important respects on the mechanics of how the reorganization process
should work. US law is based on debtor in possession-presumptively the
existing management remains in control of the ailing company during the
reorganization period but is legally invested with a new status, that of
'debtor in possession' (DIP). UK law, on the other hand, is manager-displac-
ing. Although the board of directors remains in office it loses its manage-
ment functions to an external administrator-an insolvency practitioner
normally appointed by a secured creditor with security over the whole of the
* Professor of Law, University of Manchester. The author would like to thank the Nuffield
Foundation for funding some of the research on which this article is based.
I For a comparative evaluation of the 'pro-creditor' nature of the US insolvency regime see
the joint HM Treasury/DTI report, 'A Review of Company Rescue and Business Reconstruction
Mechanisms' (May 2000) 38-41. The Review Group, however, concluded at p 33 of its report that
'it would be wholly inappropriate to attempt to replicate Chapter It in the UK, where the busi-
ness culture and economic environment are quite different'.
[ICLQ vol 56, July 2007 pp 515-552]
doi: 10.1093/iclq/lei18I](ViewImageLocal?handle=hein.journals/incolq56&div=33&collection=&method=preview&ext=.png&size=3)
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Control and Cooperative Rescue - An Anglo-American Evaluation
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