directors must remember that their fiduciary duty relates to all creditors’ interests, not merely those of the dominant creditors who may be those principally engaged in negotiating a rescue.

Finally, directors should consider whether a rescue arrangement may render them liable to disqualification from being a company director. A court must disqualify a director where it is satisfied that he or she was a director or shadow director of a company which has become insolvent and it is satisfied that his or her conduct as a director is such that he or she is unfit to be involved in the management of the company.50 When companies are in trouble, the real risks on this front tend to arise when directors hold creditors at bay while rescue options are reviewed or repay some debts rather than others for strategic reasons.51

The alarm stage

First alarms are often sounded in companies when it is not possible to find the cash to pay immediate bills.52 The company directors may then raise the issue of rescue steps or a creditor may do this: as where a bank sees that overdraft limits are being exceeded unacceptably and expresses its concerns. A meeting will usually be called at this stage and major creditors will discuss issues with directors. At this point a Governor of the Bank of England has suggested that three things are often evident.53 The first is that no one, including the company, has a sufficiently complete and robust picture of the company’s financial position to make a soundly based decision on its future.54 Secondly, the amount of debt, including off-balance-sheet items and the number of creditors, is usually larger than anybody supposed and, thirdly, the creditors often find that they have divergent interests.

A further form of alarm may be voiced in the new world of credit derivatives – the directors of a company may start to receive calls and emails from aggressive lenders, with whom they probably have never had any prior contact. Those lenders will have been prompted by their

50 Company Directors’ Disqualification Act 1986 s. 6. See V. Finch, ‘Disqualifying Directors: Issues of Rights, Privileges and Employment’ (1993) Ins. LJ 35; and ch. 16 below.

51See Re Sevenoaks Stationers Retail Ltd [1990] BCC 765.

52See Segal, ‘Rehabilitation and Approaches’, p. 147.

53Ibid., quoting the Governor’s Special Report, 25 October 1990.

54 On the importance of ‘quality information’ and ‘robust planning’ in rescue see J. Dewhirst, ‘Turnabout Tourniquet’ (2003) Financial World 56.

observations of the credit market to ask the directors a series of difficult questions about the company’s cash flows and its ability to make future payments to, and maintain covenants with, the holders of senior debt.55

The evaluation stage

When the company’s major creditors have become appraised of the company’s position there usually follows a period in which urgent attempts are made to identify the nature and extent of a firm’s problems and to assess the prospects of turnaround.56 At this time, deadlines for action vary from case to case but may be very tight and the main pressures on the company are likely to stem from cash flow problems and threats of actions by creditors. Attention will be paid to means of securing a breathing space that will allow the company to regroup and, accordingly, to sources of financing that will cover immediate needs and to gaining the co-operation of creditors. Here it should be emphasised that informal rescues require the unanimous consent of affected creditors57 and that this may often be difficult to obtain. Where, for example, a good deal of debt is owed to diverse sets of debt holders or to trade creditors who are heterogeneous and not amenable to (or capable of) negotiating rescue agreements, informal solutions will be difficult to achieve.58 Where, in contrast, debts are owed to small numbers of sophisticated lenders such as banks, the prospects of informal resolutions are brighter. To this end, it is commonly necessary to bring major creditors together and to seek to co-ordinate actions. Where appropriate, the creditors will agree to a period of grace in which existing credit lines are maintained and, if necessary, extra funds are provided for an interim period.

Analysis of the company’s state will proceed apace during this period and parties will explore such issues as the reasons for the company’s decline, the severity of the problems encountered, the extent of the viable core of the business, the human resources available to the company and the state of relevant markets and positions within these.59 Financial

55Wollaston, ‘Growing Importance’, p. 149.

56Ibid., pp. 148–9; C. Campbell and B. Underdown, Corporate Insolvency in Practice: An Analytical Approach (Chapman, London, 1991) pp. 62–5.

57A. Belcher, Corporate Rescue (Sweet & Maxwell, London, 1997) p. 116.

58S. C. Gilson, K. John and L. H. P. Lang, ‘Troubled Debt Restructurings: An Empirical Study of Private Reorganisation of Firms in Default’ (1990) 27 Journal of Financial Economics 323.

59Campbell and Underdown, Corporate Insolvency, p. 62.

reviews of the whole company will be undertaken, including an audit of each of the functions carried out by the company.

Such an evaluation will frequently be carried out by investigating accountants who will usually be nominated by the lead bank. The overall aim is to identify the company’s potential for survival and the steps that have to be taken to produce turnaround. Company directors at such a time will not, however, be inactive. They will continue to manage the company’s affairs and will usually have been asked to prepare business plans and sets of proposals for dealing with the company’s difficulties. The investigating accountants have a role in considering such business plans and both the investigators and creditors will focus on whether the critical ingredients for successful turnaround are to be encountered in the company. These parties will examine whether the managers are sufficiently able, motivated and decisive to effect a rescue, whether there is a core of business that is strong enough to found restoration of corporate fortunes and whether necessary changes can be made within the available timescales.60

Towards the end of the evaluation stage, there will occur a review by the rescuing bank or banks.61 This review will consider the report of the investigating accountants together with the managers’ business plan. Discussions with investigators and managers will be conducted and the banks will attempt not only to assess the prospects for company turnaround but also to produce some consistency and co-ordination of approach between the various banks. They will thus come to terms with issues of priorities between creditors in relation to recoveries and also with the banks’ collective position. Key issues in relation to the latter are whether additional security should be taken, whether new financial facilities should be provided and whether equity interests should be exchanged for debt.62

Agreeing recovery plans

If action at the preceding stages suggests that the prospects of recovery are good, plans for recovery will be devised and agreement on these sought. If the senior creditors are banks, the company will be likely to

60Ibid., p. 61. See also J. Wilding, ‘Instructing Investigating Accountants’ (1994) 7

Insolvency Intelligence 3.

61See A. Lickorish, ‘Debt Rescheduling’ (1990) 6 IL&P 38, 41.

62Ibid.

have agreed with them the terms on which finances will be made available during the support period and on which new securities will be offered. A support agreement will set out relevant provisions. The creditors will also have made settlements between themselves covering, for instance, the sharing of losses and recoveries and the interest rates appropriate.

When recovery objectives and strategies are drawn up by managers and advisers, they must be supported by creditors and also by other key players beyond the company. The assent of a major customer or supplier may, for example, have to be secured if a recovery is to have a prospect of success. Increasingly, in the modern era, it may be necessary to persuade the hedge funds or other holders of credit instruments to agree to a course of action – and the company may rely heavily on the services of a turnaround professional or other restructuring/corporate recovery specialist in seeking to secure such agreements.63

A particular response to multi-bank support for companies with liquidity problems was developed in London in the 1970s and became known as the ‘London Approach’.64 The Bank of England identified, at that time, a need to co-ordinate discussions among banks with loans outstanding to firms in difficulty. For broad economic reasons, the Bank wanted to avoid unnecessary receiverships and liquidations and to preserve viable jobs and productive capacity.65 The principles of the London Approach were established in 1990 and the process has operated entirely informally on the basis of a set of principles providing a framework for bank support.66 There is, by design, no formal code or

63See J. Willman, ‘Rescuers Armed With New Ideas’, Financial Times, 19 March 2007. For a case study of turnaround see R. Pugh, ‘Turnaround of Dartington Group Limited’ (2007) Recovery (Autumn) 20. See also ch. 6 above.

64See J. Flood, R. Abbey, E. Skordaki and P. Aber, The Professional Restructuring of Corporate Rescue: Company Voluntary Arrangements and the London Approach, ACCA Research Report 45 (ACCA, London, 1995); J. Flood, ‘Corporate Recovery: The London Approach’ (1995) 11 IL&P 82; Belcher, Corporate Rescue, pp. 117–22; J. Armour and S. Deakin, ‘Norms in Private Insolvency Procedures: The “London Approach” to the Resolution of Financial Distress’, ESRC Centre for Business Research, Working Paper Series No. 173, September 2000, reprinted in [2001] 1 JCLS 21; R. Obank, ‘European Recovery Practice and Reform: Part I’ [2000] Ins. Law. 149, 151–2; P. Brierley and G. Vlieghe, ‘Corporate Workouts, the London Approach and Financial Stability’ [1999] Financial Stability Review 168.

65Flood et al., Professional Restructuring, p. 27.

66See now the guiding principles set out in the British Bankers’ Association, ‘Description of the London Approach’ (Mimeo, 1996).

list of rules67 and the approach relies on consensus, persuasion and banking collegiality in order to reconcile the interests of different creditors to a company in difficulty.68 The process involves four phases. First comes a standstill covering all debt owed and all bank lenders must give support at this stage. Second, the bank sends in an investigating accountant (who will not be the company’s auditors). Third, the lead bank negotiates with the other banks in order to secure new facilities for the company (which are generally accorded priority) and, finally, where negotiations are successful, a new financing agreement for the company is put into effect and is monitored.

The London Approach has been said to have four main tenets:69 the banks are supportive and do not rush to appoint receivers; information is shared amongst all parties to the workout; banks and other creditors work in a co-ordinated fashion to reach a collective view on whether and how a company shall be given financial support; and pain is shared on an equal basis. London Approach proposals typically provide that the banks share the benefits of the rescue and the costs of the restructuring process pro rata to their outstanding exposure at the time when the banks agree to desist from enforcement actions against the debtor company.

In favour of the London Approach, it can be said to provide an efficient means of rescue that avoids the delays and expense of formal actions. Central to the Approach has been the role of the Bank of England in facilitating the emergence of an agreed course of action by the banks. The Bank has acted as a neutral intermediary and chairman and has used its authority to push discussions through banks’ hierarchies. Informal pressures can also be exerted by the Bank of England where the banks are proving difficult. Most lending agreements contain covenants that require the unanimous agreement of creditor banks to the kind of changes of repayment practice that rescues usually demand. This means that one recalcitrant bank can threaten to vote against a rescue proposal and put the company at issue into receivership unless the other

67The Bank published the approach through a number of papers by Bank officials: see P. Kent, ‘The London Approach’ (1993) 8 Journal of International Banking Law 81–4; Kent, ‘The London Approach: Distressed Debt Trading’ (1994) Bank of England Quarterly Bulletin 110; Kent, ‘Corporate Workouts: A UK Perspective’ (1997) 6

International Insolvency Review 165.

68See C. Bird, ‘The London Approach’ (1996) 12 IL&P 87; R. Floyd, ‘Corporate Recovery: The London Approach’ (1995) 11 IL&P 82; D. Weston, ‘The London Rules and Debt Restructuring’ (1992) Sol. Jo. 216.

69Belcher, Corporate Rescue, p. 118; Kent, ‘London Approach: Distressed Debt Trading’, p. 110.

banks repay its own loan.70 Such a stance would prejudice the rescue, but the Bank of England under the London Approach has been able to bring pressure on a rogue bank and encourage it to co-operate. If necessary, the Bank of England has been prepared to talk to a foreign bank’s national regulator in order to bring the creditor into line.

A number of factors may lead banks to co-operate in a London Approach rescue.71 A first consideration has been the threat of Bank of England regulatory sanctions, which may underpin the informal pressure applied by the Bank. This may well have been the case in the 1970s and 1980s but Bank interventions in workouts were reduced from the mid-1980s onwards in favour of the Bank’s encouraging the involved parties to organise workouts themselves. The Bank’s supervisory role as banking regulator was, moreover, transferred to the Financial Services Authority in June 1998.72 Other incentives to co-operate do exist, though. Individual banks may fear that if they act obstructively, the banking community will exclude them from further profitable deals or deny them future co-operation. This fear will also reduce ‘hold-out’ strategies – in which individual banks may attempt to extract better terms by threatening non-cooperation. Co-ordination is also encouraged by the practice whereby a ‘lead bank’ organises the gathering and distribution of the information relevant to the rescue. This cuts down the information asymmetries that would reduce trust and co-operation levels. It also rules out ‘free-riding’ in the information collection process, since costs are shared.73

The value of the London Approach has, however, been largely confined to very large rescue attempts and extensive borrowings.74 One reason is that implementation costs have been high – up to £6 million – and the Bank of England has had to be selective in using its good offices.75

70As noted in chs. 8 and 9 above, the Enterprise Act 2002 largely replaced administrative receivership with administration but banks will still be able to appoint administrative receivers if their qualifying floating charge predates the coming into force of the Act (15 September 2003).

71See Armour and Deakin, ‘Norms in Private Insolvency Procedures’.

72Ibid., p. 3. See the Bank of England Act 1998.

73See generally R. Haugen and L. Senbet, ‘Bankruptcy and Agency Costs’ (1988) 23 Journal of Financial and Quantitative Analysis 27–38.

74Only around 150 London Approach workouts were effected between the late 1980s and the 1990s: see Flood et al., Professional Restructuring, p. ii; F. Pointon, ‘London Approach: A Look at its Application and its Alternatives’ (1994) Insolvency Bulletin 5 (March).

75Flood et al., Professional Restructuring.

informal arrangements than banks and they may be less well equipped to negotiate such deals.78

As for secured creditors, they are likely to see their interests as concurrent with those of unsecured creditors where the troubled company’s collateral is small, but, if they are fully secured, their incentive to co-operate may be weak. In some conditions, moreover, a secured creditor may possess an incentive to move towards immediate enforcement – where, for example, delay will reduce the value of the relevant collateral79 – and here they may prefer insolvency to renegotiation. Where, as in the UK, it is common practice for companies to raise significant sums by secured loans, this imposes limits on negotiated solutions. More optimistically, however, it can be argued that even where banks have secured loans in such circumstances, they may be induced to adopt a co-operative stance because they indulge in ‘mutual aid’ understandings and anticipate requiring a return favour from other banks in the future, or because they want to protect their reputations.80

In cross-border cases, the domestic and international creditors involved may be of very many kinds. They are likely to be geographically dispersed and may have assets spread across a number of jurisdictions. They will have to work together against a background of different attitudes, procedures, expectations, regulatory regimes and laws. Languages, modes of interpretation, conceptual frameworks and insolvency law objectives may also vary.81 Relationships of trust may also be strained by suspicions that the domestic banks are too favourably disposed towards the domestic debtor (for reasons of longer-term domestic strategy). Co-operation between the banks may, as a result, be low.82 Such lack of trust may conduce to secrecy and this may impede the flow of accurate, relevant and timely information that is essential to the successful London Approach.83

The development of the credit derivatives market and the involvement of a host of new actors in the credit-providing process are changes that

78See Belcher, Corporate Rescue, p. 116.

79Armour and Deakin, ‘Norms in Private Insolvency Procedures’, p. 45 (JCLS version).

80Ibid. See also R. Sugden, The Economics of Rights, Cooperation and Welfare (Blackwell, Oxford, 1986).

81See Obank, ‘European Recovery’, p. 149.

82Ibid. The London Approach has been used as a model in other jurisdictions: see N. Segal, ‘Corporate Recovery and Rescue: Mastering the Key Strategies Necessary for Successful Cross Border Workouts – Part I and Part II’ (2000) 13 Insolvency Intelligence 17, 25.

83See Segal, ‘Corporate Recovery and Rescue – Part II’, p. 28.

place further strains on the London Approach.84 As financing has becoming more fragmented, creditor co-ordination has become more difficult as banks are increasingly joined, in the pool of parties with debt interests, by hedge funds, private equity groups, bond holders, secondary debt traders, joint venture partners, special creditor and supplier groups and intermediate investors.85 The London Approach was attuned to the 1980s when banking creditors dominated and institutional shareholders were passive, but with the modern era’s dispersion of stakeholder groups, the challenge of steering a rescue operation has changed in degree and kind. As Bird notes:

Today could not be more different. Bond holders, secondary debt traders, the US private placement market, joint venture partners, special creditor and supplier groups and intermediate investors have all discovered a voice and a willingness to interfere in one way or another … It pushes the process to the limit and sometimes beyond the sphere of influence of the Bank of England.86

The situation nowadays, then, is that the Bank of England has a voice that is joined by others and it has retreated from its central role in influencing renegotiations for a number of reasons: as a matter of policy; through reallocation of regulatory functions;87 and because, as noted above in chapter 3, large UK companies are resorting less to bank loans and making more use of intermediated debt finance, notably bond issues, to raise funds.88 The emergence of markets for corporate debt has thus increased the strains on the London Approach89 not merely because stakeholder groupings are more fragmented, extensive in numbers, hard to track down and difficult to co-ordinate but because the

84See Bird, ‘London Approach’; V. Finch, ‘Corporate Rescue in a World of Debt’ [2008] JBL 756.

85See L. Norley, ‘Tooled Up’, The Lawyer, 10 November 2003; Floyd, ‘London Approach’; Bird, ‘London Approach’; S. Frisby, Report to the Insolvency Service: Insolvency Outcomes

(Insolvency Service, London, June 2006).

86Bird, ‘London Approach’, p. 87.

87Richard Obank has, however, argued that transfer of banking supervision from the Bank of England to the Financial Services Authority under the Bank of England Act 1998 may not affect the London Approach significantly and ‘could actually strengthen the Bank’s role in work-outs by boosting its role as an independent mediator’: Obank, ‘European Recovery’, p. 151.

88See Armour and Deakin, ‘Norms in Private Insolvency Procedures’, p. 48 (JCLS version); P. Brierley, ‘The Bank of England and the London Approach’ (1999) Recovery (June) 12.

89J. Flood, ‘The Vultures Fly East: The Creation and Globalisation of the Distressed Debt Market’ in D. Nelken and J. Feast (eds.), Adapting Legal Cultures (Hart, Oxford, 2001); Armour and Deakin, ‘Norms in Private Insolvency Procedures’, pp. 48–51 (JCLS version); Bird, ‘London Approach’.

increasing complexity of financial structures produces new levels of opacity concerning the nature and extent of different parties’ interests, and, also, new potential for conflicts of interest between junior and senior creditors.90 The nature and fluidity of the debt market means not only that the costs of communicating with involved parties to a renegotiation are high (because the parties are changing and their interests are often uncertain) but there is an increase in risks of breaches of confi- dentiality and of unhelpful market responses to these breaches. It might be responded that players in the distressed debt market will tend to co-operate on rescues – for reasons mirroring the banks’ incentives – and there is evidence that market associations for distressed debt (as formed in London and New York) may encourage co-operation. Against this view, though, it can be argued, first, that the sheer involvement of a greater number and diversity of players is likely to militate against the rapid, informed and cheap negotiation of rescues, and, second, that, as pointed out above, the different parties in such markets may have very different aims, priorities and approaches when viewing rescue.

The markets in credit products are now global in nature and this further strains the London Approach. Where, as is increasingly the case, companies are bound up with overseas intermediate holding companies or subsidiaries, and where foreign banks, hedge funds and other types of organisation are involved as creditors through the holding of different credit products, the possibilities of gaining informal agreements on reconstruction, investment and short-term cash recovery diminish. Such scenarios tend to reduce the likelihood of repeated interactions between parties with claims against a distressed company. Parties buying bonds or distressed debt or parties operating from abroad

90See Segal, ‘Corporate Recovery and Rescue – Part II’, p. 26. Per David Clementi, then Deputy Governor of the Bank of England: ‘imbalances in the information available to a company and its creditors, together with possible conflicts of interest between creditors, can lead to serious coordination problems … Active markets in credit derivatives and secondary loans, whatever their merits in distributing risk, can make it more difficult to identify and organise creditors in order to negotiate any debt workout.’ ‘News Release,

Debt Workouts for Corporates, Banks and Countries: Some Common Themes’ (Bank of

En g l a n d , J u l y 2 001 ). On the tensions arising in the G US demerger ne the growing involvement of hedge funds see P. Davies and G. Tett, ‘GUS in War of

Words after Funds and Banks Corner Debt’, Financial Times, 7 September 2006; ‘Bondholders Create Uncertainty for GUS’, Financial Times, 7 September 2006. On the freezing of restructuring that can be caused by the difficulties of identifying interests see Sakoui, ‘Delicate Task of Restructuring Lehman Begins’.

are less likely to have any expectation of repeat business with the banks in question:

This increases the likelihood that one or more such parties may incorrectly observe the conventions operating in the London Approach workouts and adopt strategies which precipitate insolvency. Simultaneously it reduces the efficiency of the sanctions which the ‘club’ of London banks can threaten to exert. They are unable to exclude buyers of bonds or distressed debt from participation in future loan syndication.91

Should the London Approach be formalised and placed on a statutory footing? This would run counter to its existing philosophy of flexibility and informality, and a regime based on shared values, understandings, moral suasion and favours might be difficult to encapsulate in statutory language. Formalisation would, however, allow steps to be taken that would potentially facilitate the production of agreements between creditors. At present, if a creditor refuses to agree to a proposed arrangement, this may wreck the workout (a difficulty that has led the Bank of England to consider the possibility of replacing unanimity with a qualified majority voting system).92 Bankers, however, may be reluctant to appear uncooperative to their fellow bankers since they may be seeking cooperation from others in a future rescue. As debt trading becomes even more widespread rescue negotiations may be undermined since some smaller lenders may look to extricate themselves from a situation rather than to work towards solutions.93 Trading in the distressed market, moreover, remains a challenge to the London Approach since the banks have successfully resisted suggestions that a code of conduct should ban debt trading at ‘sensitive’ times. The banks are consequently left with their powers of influence and persuasion to deter others from spoiling rescues.94 A moratorium might, nevertheless, be provided for and the risks of creditors ‘defecting’ by selling their debt into the

91Armour and Deakin, ‘Norms in Private Insolvency Procedures’, pp. 48–9 (JCLS version).

92See Belcher, Corporate Rescue, p. 119; Kent, ‘London Approach: Distressed Debt Trading’, p. 115.

93See Kent, ‘London Approach: Distressed Debt Trading’; Belcher, Corporate Rescue, p. 120.

94See Flood et al., Professional Restructuring, p. 32. Mr Penn Kent, an executive director of the Bank of England, mooted the idea in 1994 of adopting a code of practice requiring buyers of distressed debt to comply with the Bank of England’s approach to debt restructuring. The Bank of England dropped this idea, however, after talks with bankers: J. Gapper, ‘Bank Seeks Code for Debt Sales’, Financial Times, 28 January 1994; N. Cohen, ‘Debt Trading Reform Rejected in Bank U-Turn’, Financial Times, 24 March 1994.

secondary distressed debt market might be limited by statutory restrictions on such defection, at least for a stipulated period. As noted above, however, such a ban on debt trading has been opposed by British and foreign banks and legal restrictions of the kind mooted might prove too legalistic to have many supporters. What has proved more acceptable has been the use of a code of practice. In October 2000, INSOL International produced a ‘Statement of Principles for a Global Approach to MultiCreditor Workouts’.95 This has been described as ‘a rare combination of clarity and flexibility’96 and has been endorsed by bodies such as the World Bank, the Bank of England and the British Bankers’ Association. The Statement sets out eight principles97 which are of relevance to domestic multi-bank situations, and these provide for co-operation on such matters as a ‘standstill period’ during which creditors should refrain from enforcing claims.

One respect in which such a statement of principles may prove to be of real value is in providing a foundation for the resolution of disputes between creditors. To this end, more use might be made of arbitrators or mediators in the informal rescue process. Such persons would have the task of facilitating negotiations between different stakeholder groups and would seek to secure agreements more rapidly and cost-effectively than is otherwise possible.98

As already indicated, the London Approach could be said to lead to some lowering of managerial expertise in so far as supervision arrangements by the bank will detract from decision-making powers. In reply, however, the potential effects on managers of formal alternatives should be compared, and it could be asserted that improvements of expertise are likely to be encountered when managers who have steered the company into financial troubles are led, by negotiations with bankers, to see the error of their ways and to arrive at more financially sound modes of

95For discussion see Chief Editor, ‘International Approach to Workouts’ (2001) 17 IL&P 59.

96Ibid.

97Reproduced verbatim at (2001) 17 IL&P 59, 60. Principle 2 does countenance the disposal of debts to third parties during the standstill period.

98A Price Waterhouse survey conducted in 1996 revealed that 53 per cent of respondents favoured the use of such mediators: see J. Kelly, ‘Banks Back Plan for Rescuing Big Companies’, Financial Times, 2 December 1996. The Vice-Chairman of the INSOL Lenders Group has suggested that it would be useful, in international cases, to have an ‘honest broker’ in each jurisdiction to assist in the application of the INSOL International Principles, a role that could be filled by the appropriate regulator: see (2001) 17 IL&P 59.

conducting business. Another issue relevant to expertise is whether modern banks, subject to severe competitive pressures, have the capacity and will to devote significant resources and senior expertise to the management of a major inter-creditor rescue arrangement.99 Professional experts can be brought in but these, as noted, tend to be highly priced. If there is, or becomes, a shortage of the kind of banking expertise that is needed to work the London Approach, it is to be expected that the regime will decline in importance.

Moving to issues of accountability and accessibility, the London Approach can be criticised for its secrecy and exclusivity. Not all creditors will have access to negotiations in the London Approach and attempts may be made to conduct operations without, say, trade creditors gaining information on developments. This may be efficient but it would not appeal to excluded creditors on accessibility grounds.

As for those creditors who are involved in negotiations, much depends on the procedures followed by the lead bank. This is the bank that co-ordinates the rescue, appoints the investigators, puts the rescue team together and manages information flows. The London Rules state that the lead bank must have sufficient resources and the necessary expertise to ensure that information is made available to all lenders participating in the rescue on a timely basis. Performance on this front varies, however. In the view of the Bank of England: ‘One of the most frequent complaints we receive at the Bank of England is that a lead bank has failed to provide banks with information which they regard as essential for the decisions that they are being asked to make.’100

Lead banks, nevertheless, are subject to a number of pressures to release information. They will work closely with the steering committee, which is a body of three or five persons elected by the creditors and which will encourage the dissemination of information. Lead banks also have an incentive to keep the other banks informed and content, for if the latter are not satisfied with their position they may withdraw their co-operation or they may sell their debts in the secondary distressed debt market.

As for fairness, it might be contended that the London Approach workouts operate for the benefit of large lenders and tend to undervalue small, especially unsecured, creditors’ interests. Larger creditors might

99 See Bird, ‘London Approach’, p. 88.

100 M. Smith, ‘ The L on do n Ap pr oach ’ , conference paper to Wilde Sapte Seminar, quoted in Flood et al., Professional Restructuring, p. 28.