Trade body slams 'draconian' Euro insolvency plans

R3 warns that impending EC measures to combat director asset stripping will jeopardise the UK's strong business rescue culture

The UK’s business rescue culture could be dealt a body blow if a new European Commission measure that freezes assets comes into play.

Insolvency trade body R3 has raised concerns that the European Account Preservation Order (EAPO) will cause innocent businesses to lose out, as it gives courts anywhere in the EU the power to freeze funds in UK business bank accounts without warning.

The new measure, which is intended to help creditors protect assets from concealment or removal by directors, comes without the protections usually provided under English law and could apply in cross-border debt recovery cases.

Frances Coulson, president of R3, said: “The new measure would drive a coach and horses through attempts to rescue businesses formally or informally.

Cashflow 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.”

He 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 final decision as to whether the UK signs up to these laws rest with the government, which has yet to make up its mind.