Change in Bankruptcy Laws Could Trigger Insolvency Surge
Euler Hermes ACI analysts believe that changes to Chapter 11 bankruptcy law starting in October could prompt a surge in corporate insolvencies by troubled companies in search of easier treatment. U.S. companies should better protect domestic accounts receivable.
Beginning October 17, 2005, new creditor protections stemming from the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 will take effect. As a result of these changes it will be more difficult and more expensive for companies seeking protection under Chapter 11 to emerge, which could lead to companies rushing to the courthouse to file for bankruptcy before the new laws are enacted.
According to the latest Euler Hermes Business Failure Index, the number of corporate insolvencies in the U.S. had been steadily declining the past few years. However, the group economists predict that the insolvency rate will level off in 2006 in the wake of rising interest rates and a dampening U.S. economy. This trend, coupled with the potential for more businesses to seek Chapter 11 protection ahead of the new legislation, should prompt companies to take increased measures to further protect their accounts receivable. …