Cross Border Insolvency - Essay Example

Within the more advanced legal systems when the latter deals with insolvency and bankruptcy, one usually finds a mechanism which would come in force given certain predetermined circumstances. This mechanism has the scope of actually attempting to minimise the various not so desirable effects, both on the individuals concerned as well as on the business units involved, which a situation of insolvency brings about. It can be said to be a recognition of the fact that a situation of insolvency not only effects the person or company who or which is going through a process of bankruptcy but ultimately effects also the economy as a whole.

In fact the amount of bankruptcies currently being undergone within a country is usually taken as an indication of how well that particular economy is faring. In the UK a review Group within the Department of Trade and Industry and HM Treasury opined that the trend seems to favour furthering the rescue culture. Whenever possible emphasis should be laid on the assisting of companies in order that the latter might be placed in a position to as much as possible overcome what may in the ultimate analysis be temporary financial difficulties.

It is submitted that in these types of situations, the problem is to assess exactly how temporary is temporary and numerous instances occour when what started off as being temporary resulted in the end of being permanent. In that report the emphasis seemed to be placed on the possible avoidance of liquidation and towards the furthering of a culture of a predisposition towards the preservation of a business unit as a going concern1. Before the coming into force of the 1986 Insolvency Act in the UK, there were three kinds of liquidation procedures, namely members, creditors= and compulsory when the company was insolvent.

An alternative rescue mechanism was put in place through the coming into force of The Insolvency Act 1986 called the Voluntary Arrangement procedure. This enabled the companies to enter into a contract with their creditors for the latter to be pay less than their full debts, however it was not so much utilised as it did not allow for the agreeing of a moratorium. The Insolvency Act 2000 introduces a new CVA procedure that includes a moratorium although it should perhaps be mentioned that the new CVA moratorium procedure is only available to companies that satisfy two or more of the requirements for being a small company, as set out in the Companies Act 1985.

Another remedy which may be classified as a non-insolvency remedy available to companies is a Scheme of Arrangement under Section 425 of the Companies Act 1985. Such schemes can be complex and have proved to be somewhat difficult to organise. Experience has shown that because of the expense and perhaps other reasons this remedy seems to be used primarily by the larger companies. Individual Voluntary Arrangement (IVA) can be said to be the personal insolvency equivalent of a CVA. In contrast to CVAs, the Insolvency Act 1986 provided a moratorium for those seeking an IVA.

However, the Insolvency Act 2000 introduces a simplified procedure for non-traders (i.e. consumer debt cases). In the case the Courts may