CBI president Sir Martin Broughton must have been less them impressed yesterday when Tory leader David Cameron used a CBI platform to sing the praises of Chapter 11, the US system under which insolvent companies are protected from their creditors and given time to restructure themselves.

Broughton's day job is chairman of British Airways and, as he and his predecessors have said for years, one of the reasons global aviation is so consistently financially chaotic is that US carriers are never allowed to go bust. Delta, United, Continental, US Airways - almost all of them with the exception of American - have gone into Chapter 11, often more than once, shed their debts and carried on flying.
Not only does this encourage irresponsibility in overgearing, overexpansion and general lack of prudence, it also creates permanent overcapacity and is grossly unfair on competitors such as British Airways, which have to operate within the constraints of running the business properly.

Closer to home, one of the concerns highlighted by the occupational pensions crisis is the unfair advantage given to companies that use the insolvency laws to shed their pension obligations, and re-emerge as much more dynamic and financially sound competitors able to wipe the floor with rival companies which continue to support their pension schemes.

Chapter 11 embodies the same principle of incentivising irresponsibility to the detriment of firms that run their businesses properly - a strange principle for a Tory leader to promote, and one which suggests he and Shadow Chancellor George Osborne are not yet as financially and economically sophisticated as they would have us believe.

Cameron is not much of a historian either. In 1986, under a Conservative Government, the UK insolvency acts were completely redrawn with the aim of getting the best of the US system without its drawbacks.

This led to the concept of administration - a step short of bankruptcy - and the appointment of an administrator, whose brief is very much to keep the viable parts of the business going and find a secure new home for them, rather than simply shut down everything to raise money for creditors. That, in fact, is precisely the feature Cameron admires about Chapter 11.

It is interesting, too, who is backing him on this. Prominent among them are the hedge funds and others who specialise in trading distressed debt, and who would welcome the opportunity for every corporate restructuring and insolvency to degenerate into a lawyer-fest because it gives them the platform to exert maximum leverage in what is inevitably a grey area of rights and obligations. One wonders how much they really share Cameron's professed interest in preserving jobs.

There is, however, something the Tory leader could do if he wants to cut down on the number of bankruptcies and give business more time to solve its problem. It is, generally speaking, not the banks that drive companies to the wall, or their customers and trade creditors.

Rather, it is Her Majesty's Revenue & Customs, which bankrupts businesses to get its hands on unpaid tax, accounting for by far the largest number of insolvencies. If Cameron really wants to reduce the number, perhaps he should drop the taxman down to the bottom of the list of preferred creditors rather than having him at the top.

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