Government opt-out safeguards UK rescue culture
The Government has announced that it will opt out of European Commission plans to introduce a cross-border debt recovery tool that would have damaged the UK’s business rescue culture. The European Account Preservation Order (EAPO) would have given courts anywhere in the EU the power to freeze funds in UK business’ bank accounts without warning. R3, the leading insolvency trade association, had criticised plans to introduce the EAPO on the basis that it would give individual creditors the power to jeopardise the chances of business turnaround by starving companies of cash when they need it most. The UK is widely considered to be at the forefront of business turnaround and rescue and it was feared that the loose drafting of the EAPO would stifle attempts to rescue companies, leading to lower returns to creditors and damaging the wider economy.
The Government opt out is not a surprise as the Commons Select Committee on European Scrutiny had flagged up concerns regarding the EAPO during the summer. The Committee noted that, “Although the Government supports the principle of an European Account Preservation Order, we understand from recent communication with departmental officials that the Government thinks the text, as currently drafted, goes too far in favouring the rights of creditors at the expense of debtors.” In particular, it was felt that there was insufficient requirement to demonstrate that there was a risk of assets being disposed of or concealed, meaning that applications could be made regardless of whether the situation merited the use of the EAPO.
This looks like a sensible approach: it is important to ensure that assets are handled properly at all stages of business recovery. But safeguarding assets must be balanced by the need to ensure that a company has the best chance of being rescued as a going concern, in order to save jobs, minimise the effect on supply chains and trading partners, and maximise the return to creditors.