16 July 2008

Thinking it through

Is this really a sensible idea? The Times reports:
David Cameron called for United States-style bankruptcy protection laws for businesses yesterday as part of a Conservative rescue plan for the economy. Speaking at the CBI, the Conservative leader said that thousands of jobs could be lost unless companies were given breathing space to try to raise new finance. The US bankruptcy rules, under the Chapter 11 system, give firms court protection as they try to agree a deal with their creditors.
...
A Chapter 11-style regime would give businesses in trouble the chance to raise new money by offering rescue financiers priority over other creditors. Rescue proposals would need only the backing of the court and a majority of shareholders - meaning that they could not be blocked by creditors.

Just who are those creditors? Well, some of them will be other businesses who supply the company concerned; other creditors will be banks and financial institutions who have lent money to the company. A Chapter 11 regime would inevitably mean that lenders and suppliers would become more careful about their relationships with companies - which in turn means that the cost of borrowing would increase and credit would be more difficult to secure. In the current dismal economic climate, is that really what Mr Cameron wants?

1 comment:

Anonymous said...

What's all this nonsense about? Is this not the silly season? What's happened to your usual silly season posts about Hibs and cats stuck in tress? My head's hurting!