move towards formal insolvency procedures because these are likely to generate fee income. Such acute divergences of interest make it especially important that rescue regimes are not only fair and accountable but seen to be so.

Informal and formal routes to rescue

Troubled companies and their directors, creditors or shareholders are able, as noted, to take informal as well as formal steps in order to effect rescues – most rescues are, indeed, achieved through informal action.37 Informal actions do not demand any resort to statutory insolvency procedures but are contractually based. They are usually instituted by directors or creditors and they may involve the use of professional help: where, for instance, a ‘company doctor’ or firm of accountants is appointed (usually on a creditor’s insistence) to investigate the company’s affairs and to make recommendations. Such informal steps may result in the kinds of remedial action already referred to: changes in management, corporate reorganisations or refinancings, for example. Alternatively, under the ‘London Approach’, co-ordination of a creditors’ agreement in accordance with informal guidelines may be achieved with the Bank of England acting as an honest broker in making efforts to persuade reluctant parties to pursue such informal settlements.38 Formal arrangements under which rescues may be attempted are provided for in the Insolvency Act 198639 and include company voluntary arrangements (CVAs),40 receiverships and administrative receiverships41 and administration.42

From the company management and shareholders’ point of view, a general advantage of informal rescue is that publicity concerning corporate troubles may be minimal, the stigma of formal insolvency may be avoided and the goodwill and reputation of the company preserved. Avoiding the adverse publicity that would often follow the commencement of a formal insolvency proceeding can have a significant impact on the ability of a company to survive and on the realisable value of its

37See S. Frisby, Report to the Insolvency Service: Insolvency Outcomes (Insolvency Service, London, June 2006).

38See ch. 7 below. In 1998 the Financial Services Authority took over from the Bank of England as banking regulator.

39See also Companies Act 2006 s. 895; chs. 9 and 11 below.

40Insolvency Act 1986 ss. 1–7. 41 Ibid., ss. 28–69, 72A–H. 42 Ibid., Sch. B1.

assets.43 The cost of informal procedures is also likely to be lower than where court proceedings are involved.44 Delays and attendant costs may, furthermore, be reduced where rescues are managed without hostile litigation.45 Informality also ensures flexibility so that terms can be adjusted and renegotiated in a way that formal procedures (such as approval processes) do not allow. From the point of view of company directors, a further considerable advantage of informality is that this avoids the intervention of an insolvency practitioner in the role of a formal scrutiniser of directorial actions. Where rescues are formal, IPs possess extensive powers to investigate corporate affairs together with a duty to report on the conduct of directors.46 Such IPs will, moreover, assume control of the company. Informal rescues thus avoid the investigations and changes in power and control that directors may fear.47 Another incentive for management to see that the company remains outside formal insolvency is that formal insolvency procedures carry with them the stigma of (usually culpable) failure.48 In terms of external perceptions, particularly in employment markets, it may be ‘bad news’ for management to be associated with a company which has had recourse to formal insolvency procedures.49

From the point of view of many banks and secured lenders, informal rescue may be attractive in ways that can outweigh attendant risks. It not only offers the prospect of repayment in full, if ultimately successful, but

43See Brown, Corporate Rescue, pp. 11–13; N. Segal, ‘Rehabilitation and Approaches other than Formal Insolvency Procedures’ in R. Cranston (ed.), Banks and Remedies (Oxford University Press, Oxford, 1992) p. 133.

44But see discussion of the London Approach in ch. 7 below.

45‘Formal insolvency not only crystallises parties’ rights, but also their attitudes’: Brown,

Corporate Rescue, p. 11.

46See e.g. Insolvency Act 1986 ss. 234–7. Once an administrative receiver has been appointed, an administration order made, or the company has gone into liquidation, the relevant IP is under a duty to submit to the Secretary of State a report on the conduct of the directors of the company: Company Directors’ Disqualification Act 1986 s. 7(3) and the Insolvent Companies (Reports on Conduct of Directors) No. 2 Rules 1986. This could lead to action being taken for the disqualification of those directors: see ch. 16 below.

47Though a cessation of power would, from that point, reduce dangers of subsequent liquidator actions for fraudulent or wrongful trading under the Insolvency Act 1986 ss. 213 and 214: see ch. 16 below.

48See Segal, ‘Rehabilitation and Approaches’, p. 132.

49Ibid., where the point is made that we have not yet reached the stage in England (as arguably occurs in the USA) of regarding the reorganisation of companies in difficulty through the use of court procedures as ‘being an acceptable, even standard, tool of business management’.