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Super-creditors Scheme 'unlawful'

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Super-creditors scheme 'unlawful'

Government plans to create a new class of ' super-creditors' with first pick of the assets of failed companies could trigger lawsuits and plunge the insolvency scene into chaos.

Ministers want to encourage banks and others to lend money to insolvent firms to help them trade out of their difficulties.

They believe the way to overcome lenders' reluctance is to give them 'absolute priority' over the assets of the company should it go bust anyway.

But this would cut across the rights of those who had lent money to a firm before it became insolvent and who believed their loans were secured on those assets.

Were these original creditors to sue, the whole process of restructuring and rescuing troubled firms could be halted.

'This would involve breaking through existing contractual arrangements,' said Maurice Moses, restructuring partner at accountant Ernst & Young.

'I am not sure how it is going to work.'

Mark West of chartered accountant Berley said: 'Any such arrangement has to be open to the charge of being unlawful.

'It would undermine the rights of the original creditors. Furthermore, it would be open to abuse by unscrupulous lenders.'

Traditionally, a bank would appoint a receiver to an insolvent company and, acting in the bank's interest, it would advance money to the firm in question. But since 2003, receivers have been replaced with an administrator, who acts in the interests of all creditors.

This has made banks more reluctant to lend to a risky firm.

On June 15, the Insolvency Service - an agency of the Business Department - will launch a consultation, expected to last for six to 12 weeks to take forward the idea of giving 'absolute priority' to lenders of 'new money' to insolvent firms.

'This would make it more attractive to lend to companies in this situation, allowing them to access the funding they need to stay in business,' said a spokesman for the service.

But one leading insolvency profession source said: 'This could be open to legal challenge and it is unclear that a recession is the best time to change insolvency law.'

Peter Sargent, president of insolvency profession trade body R3, said: 'These proposals may provoke unintended consequences in terms of bank lending that will need to be thought through. We do welcome public debate.'

In other words, instead of transparent and regulated debt reclamation legislation, the government wants to murky the waters and add an element of sleaze.

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Super-creditors scheme 'unlawful'

In other words, instead of transparent and regulated debt reclamation legislation, the government wants to murky the waters and add an element of sleaze.

No, they just came up with an idea which they had thought through to the point of thinking it would generate a positive headline to show that they were doing something, but somehow missed the fatal flaw. Probably an isolated instance.

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bankers arent reluctant to lend, they are reluctant to lend to people who are going to go bust anyway.

They like to lend when the money they lend is going to be returned, by the bucketful.

even as a superior creditor may only get their money back...and thats not what a bank wants. it wants, it NEEDS it back with interest.

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If I understand this right the idea is that if I lend money today and a company goes TU tomorrow as the last creditor I become the first to get paid?

Currently I have lent £3.00 to Bob the Builder, Bob's business is looking weak and he asks me for more money. Knowing the new rules (if they materialise) could I lend him another £3.00 and then my £6.00 would be the priority or alternatively would I call in my right as a creditor to demand full payment now thus making sure I am the first to get my money before he goes under?

Never mind margin calls this will force creditors to request full payment for any companies expected to fail now.

Good plan.

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No, they just came up with an idea which they had thought through to the point of thinking it would generate a positive headline to show that they were doing something, but somehow missed the fatal flaw. Probably an isolated instance.

:lol: Very good!

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If I understand this right the idea is that if I lend money today and a company goes TU tomorrow as the last creditor I become the first to get paid?

Currently I have lent £3.00 to Bob the Builder, Bob's business is looking weak and he asks me for more money. Knowing the new rules (if they materialise) could I lend him another £3.00 and then my £6.00 would be the priority or alternatively would I call in my right as a creditor to demand full payment now thus making sure I am the first to get my money before he goes under?

Worse still if you lend him the extra £3 and then he borrows £3 from someeone else next week, you lose priority and lose all £6.

Or lend him another £3 and I'll lend him another £3 next week, recall the debt a day later then recover my £3 plus £3 fees/fines/interest/handling charges.

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No, they just came up with an idea which they had thought through to the point of thinking it would generate a positive headline to show that they were doing something, but somehow missed the fatal flaw. Probably an isolated instance.

This is the hallmark of everything they have done in this government.

Corruptly incompetent, driven by spin and with an utter contempt for the people they are supposed to serve.

When they proclaim it is the 'right thing to do', the question that must be asked is: for whom?

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