Headlines

Like a shipwrecked sailor on a starvation diet, the new British coalition government is preparing to shrink down to its bare bones as it cuts expenditures by $130 billion over the next five years and drastically scales back its responsibilities, The New York Times reported. The result, said the Institute for Fiscal Studies, a research group, will be “the longest, deepest sustained period of cuts to public services spending” since World War II. Until recently, the cuts were just election talking points, early warnings of a new age of austerity. But now the pain has begun.

The main unit of Mexicana on Monday said that it was cutting flights "to a minimum" amid falling sales and cash reserves following last week's bankruptcy filing, Dow Jones reported. Compania Mexicana de Aviacion also said its problems had spread to regional and low-cost units, MexicanaClick and MexicanaLink, which did not file for creditor protection but are suffering "serious repercussions" on sales. Mexicana said it was suspending flights starting Monday to 13 destinations, including long-haul services from Mexico City to Madrid, London, Buenos Aires and Sao Paulo.

AbitibiBowater Inc. is seeking to quickly strike a deal in connection with a proposed bankruptcy-exit financing package of up to $750 million, Dow Jones Daily Bankruptcy Review reported. The pulp-and-paper company is asking the U.S. Bankruptcy Court in Wilmington, Del., to schedule an Aug. 25 hearing at which it would consider allowing AbitibiBowater to enter into agreements with Barclays Capital Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., which have agreed to manage a $750 million notes offering.

The Duchess of York is doing "everything she can" to avoid bankruptcy as she struggles to manage debts running into millions of pounds, The Guardian reported. Sarah Ferguson has paid off all her personal debts, her spokesman said, and her business debts – some of which are disputed – were "being managed", although voluntary bankruptcy was still an option. Ferguson's money woes became public after a newspaper claimed her personal and business debts had risen to almost £5m, prompting fears in the royal family that bankruptcy was now her best option.

Investors in failed finance company Strategic Finance are to get their first payout since the company was placed in receivership, TVNZ reported. Receivers PricewaterhouseCooper announced a payout next month of between 1.5 and 2.5 cents in the dollar to approximately 13,000 investors. Strategic Finance and its associated companies went into moratorium two years ago owing investors around $400 million dollars. In March this year, they were placed into receivership with their loan books estimated at $229 million.

With loan default rates continuing to cause headaches for banks, it seems an increasing number of lenders are dabbling in debt-for-equity swaps as a viable alternative to insolvency, InsolvencyJournal.ie reported. As the downturn continues to bite, and investors as scarce as hen's teeth, there's very little appetite for business assets in Ireland at the moment. Fire-sales can result in lower loan recoveries and because of this, liquidation is often not the best option for banks who wish to recover some of the debts owed to them when companies default on loans.

An Essen court will decide Tuesday if it will grant another extension for billionaire investor Nicholas Berggruen and creditors of retailer Karstadt to continue sales negotiations for the insolvent German department store chain, a spokesman for Karstadt's insolvency administrator said Sunday, Dow Jones reported. Berggruen and Karstadt's creditors were unlikely to reach an agreement on Berggruen's takeover plan for Karstadt before a midnight Sunday deadline to sign a contract.

Bankruptcy decisions made by US courts could be enforceable in England and Wales after an important court ruling that lawyers say could have implications for former UK clients of collapsed bank Lehman Brothers and those of the fraudster Bernard Madoff, the Financial Times reported. The Court of Appeal recently ruled in the case of a trust created by Eurofinance SA that English courts could recognise overseas insolvency proceedings made by US courts. Previously US bankruptcy judgments were not enforceable in the UK unless a separate UK action had been started on the same grounds.

A U.S. federal magistrate has shielded Nortel Networks Corp. from action by U.K. pension regulators who fear the troubled company will walk away from obligations to 40,000 retirees, leaving a $3.4 billion funding shortfall, Dow Jones Daily Bankruptcy Review reported. Recommendations issued Thursday by U.S. Magistrate Judge Mary Pat Thynge relieve the company of worry that the U.K.'s Pension Regulator will intrude as Nortel negotiates a bankruptcy exit plan, at least until a federal district judge reviews and acts on Thynge's recommendations.

Center Nalozbe, one of the troubled financial firms in what is considered to have been a management buyout chain at brewery Pivovarna Lasko, will go into receivership after efforts for court-mandated debt settlement failed, STA, the Slovenian Press Agency, reported. Read more. (Subscription required.)