The controversial practice of private equity firms extracting cash from their portfolio companies via dividend recapitalisations is under threat from European regulation, lawyers say, triggering a review from the industry’s UK trade body.

Dividend recapitalisations allow private equity firms to extract cash by loading portfolio companies with debt, and are at the highest level since the onset of the financial crisis, with $8.2 billion worth done in Europe in the first nine months of the year, according to Dealogic figures. However, the practice has drawn critics who say that the private equity firms are siphoning away cash that companies need to weather short-term slowdowns, increasing the risk of a corporate collapse and default on bank loans and bonds.