Professor of Commercial Law at the University of Oxford, Professorial Fellow of St Hugh’s College, and ECGI Research Associate
Comparative Corporate Insolvency Law
This chapter deals with fundamental issues of corporate insolvency law. Particular attention is paid to the agency problems related to “bankruptcy governance” and how these are addressed in various jurisdictions. Methodologically, the chapter is based on a functional approach that compares different legal regimes against the yardstick of economic efficiency. The structure of the chapter follows the issues as they arise in time in a corporate insolvency proceeding: objectives of insolvency laws, opening and governance of proceedings, ranking of claims and the position of secured creditors and shareholders, and rescue proceedings. The chapter also covers the contractual resolution of financial distress. It concludes with thoughts on the reasons for the identified jurisdictional divergences and an outlook on the worldwide efforts towards harmonization of (corporate) insolvency laws. In terms of jurisdictions, the chapter mainly draws on the corporate insolvency laws in the US, England, France and Germany.
Corporate law and governance on the one hand and insolvency/bankruptcy law on the other have long been viewed as distinct disciplines: whereas the former deal with legal issues associated with the organization and operation of a solvent corporation, the latter is meant to address a new set of legal problems arising once a corporation finds itself in severe financial distress. Agency conflicts between shareholders and management and between majority and minority shareholders figure prominently in corporate law and governance. Agency conflicts between the corporation and its creditors and within the creditor community are at the centre of insolvency law. The divide between these two spheres of law and academic discipline becomes less clear, however, once one conceives of insolvency law as “corporate governance under financial distress”. Indeed, “insolvency governance” can be characterized as a special form (or case) of “corporate governance”. The conceptual/analytical apparatus to understand the regulatory problems and develop potential policy responses is the same; it is only the framework conditions which change, and possibly only to a small degree: laws on the (financial) restructuring of businesses pre-insolvency are gaining increasing importance, in the European Union and elsewhere.