European debt recovery practice threatens UK business rescue

A new European Commission measure to freeze the assets of British businesses has dealt a significant blow to the UK’s business rescue culture according to the insolvency trade body R3.

The new measures known as the European Account Preservation Order (EAPO) is set to give courts anywhere inside the EU the power to freeze funds in UK businesses’ banks accounts without any prior warning. This new tactic worrying comes without the crucial protections and safeguards that are in place with similar procedures originating in English law.

R3 commented on the developments by saying the new measure would effectively derail attempts to rescue businesses formally or informally. Cash flow is a critical factor during delicate business rescue work and by removing access to any substantial cash funds without notice can result in a single creditor gaining the opportunity to jeopardise all hope of business preservation, and in doing so, harming the other (non preferential) creditors as a whole.

Though the new measures were initially intended to help creditors protect assets from concealment or the removal by the company directors, the EAPO has been condemned by having such loose drafting, that the measures can be granted for a range of reasons unrelated to a serious risk to assets.
As such, they risk being routinely granted in cross-border debt recovery cases.

R3 Director Frances Coulson said that “The UK is seen as an international leader in business rescue, benefitting creditors who usually receive higher returns in rescue than terminal procedures. If EAPOs are supposed to protect assets from dodgy directors, the new regulation should reflect this objective. As they stand, the proposals are dangerous and draconian.”

The UK Government now must decide whether to opt out of the plans, which are moving apace. R3 is the trade body for Insolvency Professionals, and is made up of 97% of the UK’s Insolvency Practitioners from all over the UK.

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