Insolvency Mitigation And Restructuring Through Legislation
The world is reeling under the pressure of the present economic slow down and we
can only witness and watch in silence, simply because there are no solutions to tide over the downturn. Most companies that were doing good business a year and a half ago werent even close to imagining even something closer to the real economic situation we are faced with today, and we are beginning to see and understand that there are not many businesses that are completely free from plunging in to insolvency. One unavoidable fact emerging from the endless hours of brainstorming and discussions by some of the leading financial experts and gurus on the reasons, current trends and the future estimations of the recession is that the liquidity problem has turned itself into a much more troublesome solvency crisis. While any business or bank looses the ability of to convert its assets into cash, it looses it liquidity and becomes faces a situation of falling into insolvency. And while a liquidity crisis can not be resolved over a period of the time, it could escalate into an insolvency crisis.
It is the domestic solvency crisis in US housing finance which has grown into a liquidity problem world wide. And to add to it is the Dubai meltdown. Billions of Dollars and Pounds lay buried in the flamboyant Sheiks desert sands with no definitive sign of recourse in sight. In the UAE an insolvent company is required to file in within the limited period of 30 days beyond which it becomes a criminal offence. But the ground truth is that in spite of it being a criminal offence companies try to stretch and pull on all their resources to keep it running, expecting debtors to pay. While insolvency procedures would help close down unviable businesses and create chances to start new ones, not every body is submitting to it. Also the financial rules and the temperamental nature of the rules make Dubai an insecure place to do business under the current economic environment.
Even in countries where legislatures have favored alternatives to winding up companies for good the trend is not encouraging. In the United States the insolvent business are protected by the Chapter 11 provisions, which let a business continue to run under a negotiated and declared protective arrangement where recovery options within a time frame are clearly worked out. In the United Kingdom too, it is criminal to trade while being insolvent. Laws pertaining to curing corporate insolvency and restructuring seek to restore the company in debt to a better and viable status, where ever applicable and possible and also to repay the banks and the creditors when the company can not be saved.
Todays economic crisis has also created the need for new legislation, practices and financial guidelines for every country that is trying to deal with the economic recession. And so most
insolvency measures and restructuring practices are concentrated and focused on remodeling of the organizational structure and financial channels rather than on liquidation and elimination of insolvent entities.
by: Yossarian Smythe
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