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November 2011
Business asset freezing plan under fire
Insolvency experts have warned that a proposed new European Commission measure to freeze the assets of British businesses could deal a serious blow to work to rescue firms in financial difficulties.
The European Account Preservation Order (EAPO) is set to give courts anywhere in the European Union the power to freeze funds in UK businesses’ banks accounts without warning.
But Frances Coulson, president of insolvency trade body R3, said the new measure “would drive a coach and horses” through attempts to rescue businesses formally or informally.
She added: “Cash flow is critical during delicate rescue work. Removing access to substantial funds without notice gives a single creditor the right to jeopardise hopes of business preservation, harming creditors as a whole.”
Though intended to help creditors protect assets from concealment or removal by directors, R3 says the drafting of the EAPO enables the measure to 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.
Ms Coulson added: “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 Ministry of Justice is now considering responses to a consultation on whether it is in the UK’s interests to be a party to the proposed EAPO regulation, which closed in September.
LINK: Ministry of Justice consultation documents
