UK securitisation under threat

Government insolvency proposals could wreak havoc on deal structuring

The Government has announced proposals to make changes to the Insolvency Act (1986) which could potentially threaten the UK domestic securitisation practice.
At the launch of the Government's Enterprise For All initiative, Chancellor Gordon Brown announced plans to abolish administrative receivership and Crown preference – the right of the Inland Revenue and Customs & Excise to have first call for tax payments ahead of unsecured creditors.
But whole business securitisation relies on the ability to appoint an administrative receiver and, without this fall-back, structuring these deals may become impossible.
The Government has acknowledged that the changes may be incompatible with whole business securitisation and is consulting on this.
Freshfields securitisation partner David Trott said the changes could damage the industry. “Potentially they could cause structuring difficulties for the whole business securitisation market in the UK. However, without seeing the actual proposal, it is impossible to say anything for certain,” he said.
The Government's recognition that the changes may affect securitisation is not necessarily good news for the market.
Trott said that, although the Government did not want to harm securitisation, it may prove too difficult to write a preserve clause.
He said: “I would be surprised if the changes led to a complete rule-out of whole business securitisation but it may lead to additional transactional and structural costs to work around the changes. This will pose a challenge to the structuring capabilities of lawyers in the market.”
Whole business securitisations are virtually restricted to the UK as insolvency laws in other parts of Europe make it difficult to structure transactions. But Freshfields has just closed a deal with Deutsche Bank which arranged the first European whole business securitisation to be done out of a French SPV.
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