Debt restructurings, debt grifting and the limits of contractualism

Abstract

This article critically examines corporate restructuring plans and schemes in the United Kingdom and United States and third-party releases in the context of such corporate restructurings. So far, the practice has been more extensively examined in the United States rather than the United Kingdom and the practice has been castigated as ‘debt grifting’, that is, third parties getting the benefit of a bankruptcy discharge without going through the formal bankruptcy process. This article acknowledges some of these criticisms. It also suggests that, if third-party releases become more widespread in the United Kingdom, this is likely to militate against the success of the United Kingdom as an international corporate restructuring venue. This is particularly the case if the underlying debt is disputed or gives rise to social or political controversy. The article is divided into five parts. After the first introductory part, the second part will examine how debts are restructured in the large corporate context in the United Kingdom and how third-party releases are important for this endeavour. The third part will examine the equivalent position in the United States. The fourth part explores how the restructuring solutions currently on the table push up against the limits of contractually derived solutions. The final part concludes.