CREDITOR'S RIGHTS

Creditors' Rights: An Examination of the Protection Techniques Available to Creditors of Affiliated Companies in the United Kingdom

Creditors' Rights: An Examination of the Protection Techniques Available to Creditors of Affiliated Companies in the United Kingdom

Introduction

The importance of the Creditor Rights is very important in UK. The Global Financial Crisis that took place in the year 2008, created a need of a proper mechanism to safeguard the interests of the Creditors working in the country. There were many big companies that suffered from bankruptcy and became insolvent such as General Motors, Lehmann Brothers, Bank of England and Citibank etc. Though, all the companies in UK and USA received financial support from their respective governments in the form of bail outs. The improvement in the regulation system of the financial transactions was proposed by the financial experts of the country. The creditors' vowed to have cooperation with the concerned authorities. Traditionally, corporate creditors are considered as passive bystanders until firms are in default. In fact, a bank influences a firm well before bankruptcy. When a firm breaches a financial covenant, technical default triggers and control rights shift to the creditor.

As a result of having a whole range of controls, large creditors combine substantial cash flow rights with the ability to interfere in the major decisions of the firm. When a firm violates loan covenant, banks possess the power over the corporation and has a chance to influence firm corporate governance. Therefore, passive public bondholders may benefit from active bank influence, though financial covenant violation itself is negative news. All the reasons create a need for the implementation of a mechanism for the Creditor's Rights. The protection of the Creditor's Rights should be the most important task for the UK. Therefore, all the issues and aspects related to the Creditor's Rights in UK will be discussed in detail. Background of the Insolvency Law

Recently, there has been a lot of attention in the media focused on the Solvency II Directive 2009/138/EC. Primarily this European Union (EU) legislation concerns the amount of capital that EU insurance companies must hold to reduce the risk of insolvency. Once the Solvency II directive is approved by the European Parliament, it will be scheduled to come into effect on January 1, 2013. The Solvency II regulation aims to enhance consumer protection, because the current EU capital minima for insurance companies, as generally accepted, are insufficient. The conventional wisdom is that the enhanced protection of customers comes at a price: according to a survey by London-based Interim Partners Ltd, 88% of senior interim financial services executives believe that the Solvency II regulation ultimately would result in higher costs for insurance buyers.

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