European Restructurings This Time Round

The private equity buyout boom of the past few years, followed by the credit crunch of the past couple of months, have been just as strong phenomena in Europe as they have been in the US. Buyouts took on greater and greater levels of leverage, fuelled by debt that was increasingly ending up in the hands of non-bank financial institutions-- hedge funds, insurance companies and pension funds-- rather than banks. Now it looks like these types of investors have, for the time being at least, lost much of their appetite for credit risk. Not only have the deals dried up, but the medium-term prospects for the more optimistically leveraged buyouts -- facing risks of covenant blowout and refinancing imperatives -- are not looking so great. So far, this is a familiar story for US readers. However, in the European context, the restructurings in this round are likely to take place against a background that is quite different in many ways, a few of which I'll try to explain after the break.

Personal Bankruptcy Law and Entrepreneurship

An issue that's been at the forefront of recent personal (i.e. non-corporate) bankruptcy reforms in Europe has been the notion that an unforgiving bankruptcy regime may act as a deterrent to starting a business. There's a strong perception in European policy circles that US bankruptcy law is more forgiving of overindebtedness, and that this in turn is linked to a more entrepreneurial business culture. Thinking of this sort (see, e.g., the Insolvency Service' Consultation Paper) underpinned the UK's recent relaxation of its personal bankruptcy laws (effective 1 April 2004), to permit individual bankrupts to obtain a discharge from prebankrupty indebtedness after only one year, as opposed to the three years it previously took. Similar policy initiatives, encouraged by the European Commission, have also been taking place in other European countries. There's a certain irony, however, that at the very time this has been going on in Europe, in the US-- the country offering the inspiration for reform-- access to a fresh start for individual debtors has been made more difficult. One of the important questions this raises is whether there really is a link between bankruptcy law and entrepreneurship.

Corporate Bankruptcy Costs and Recoveries in the UK

I'm thrilled to have been invited to be guest blogger on Credit Slips for this week. I'm hoping to cover a number of issues; starting with some recent empirical work I've been doing on business and consumer bankruptcy, then some comments on recent issues in European bankruptcies that may be of interest to readers.

I'm going to start today by discussing the impact of the UK's most recent reform of corporate bankruptcy law. Details below the fold.