Statutory Rules, Common Law Rules and Public Policy in the Global Financial Crisis (original) (raw)
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Corporate Insolvency Law in the Twenty-First Century: State Imposed or Market Based?
Journal of Corporate Law Studies, 2014
The central premise of this article is that financial innovation and the everincreasing complexity of proprietary entitlements necessitate a principled recalibration of the boundaries of regulation and contract in corporate insolvency law, a recalibration that is already under way. Through the lens of a combination of 'commons/anti-commons analysis' and 'contractualisation of bankruptcy' models, the article critically analyses recent developments at European and national level, in particular the development and reform of the concept of Centre of Main Interest (COMI), the rise of prepackaged administrations and the reformulation of the anti-deprivation principle. The adopted theoretical framework explains and justifies these developments and provides some guidance for future reform efforts. A. INTRODUCTION Since the publication of the Cork Report 1 more than 30 years ago, corporate insolvency law has flourished as a subject of academic enquiry. Initially perceived as a rather technical area, of relevance mainly to practitioners, the interest in a theoretical and * School of Law, King's College London. A draft of this paper was first presented at the INSOL Europe Academic Forum conference in Venice, September 2011. I would like to thank Rolef de Weijs, Roger Brownsword and Robin Parsons for helpful comments. The usual disclaimer applies. 1 Report of the Review Committee, Insolvency Law and Practice (Cmnd. 8558) (Cork Report). 2 principled analysis of the complex policy issues involved has increased significantly. 2 With the enactment of the European Insolvency Regulation (EUIR) 3 corporate insolvency law in Europe has effectively become a multilayered system, 4 a tendency that is likely to increase. The ongoing global financial crisis has further sharpened the focus. 5 Major reform efforts are either under way or have already been implemented. 6 In the context of
Corporate Insolvency Law in the 21st Century: State-Imposed or Market-Based?
SSRN Electronic Journal, 2000
The central premise of this article is that financial innovation and the everincreasing complexity of proprietary entitlements necessitate a principled recalibration of the boundaries of regulation and contract in corporate insolvency law, a recalibration that is already under way. Through the lens of a combination of 'commons/anti-commons analysis' and 'contractualisation of bankruptcy' models, the article critically analyses recent developments at European and national level, in particular the development and reform of the concept of Centre of Main Interest (COMI), the rise of prepackaged administrations and the reformulation of the anti-deprivation principle. The adopted theoretical framework explains and justifies these developments and provides some guidance for future reform efforts. A. INTRODUCTION Since the publication of the Cork Report 1 more than 30 years ago, corporate insolvency law has flourished as a subject of academic enquiry. Initially perceived as a rather technical area, of relevance mainly to practitioners, the interest in a theoretical and * School of Law, King's College London. A draft of this paper was first presented at the INSOL Europe Academic Forum conference in Venice, September 2011. I would like to thank Rolef de Weijs, Roger Brownsword and Robin Parsons for helpful comments. The usual disclaimer applies. 1 Report of the Review Committee, Insolvency Law and Practice (Cmnd. 8558) (Cork Report). 2 principled analysis of the complex policy issues involved has increased significantly. 2 With the enactment of the European Insolvency Regulation (EUIR) 3 corporate insolvency law in Europe has effectively become a multilayered system, 4 a tendency that is likely to increase. The ongoing global financial crisis has further sharpened the focus. 5 Major reform efforts are either under way or have already been implemented. 6 In the context of
The breach of public policy is the sole reason in terms of the Regulation that justifies the exceptional refusal of an EU Member State to recognize the main insolvency proceedings and grant their effects. However, the application of ordre public in this connection is more than questionable. It is doubtful whether the EU Member States may in an individual case deny effects to a European regulation as a significant and directly applicable source of European law, which is simultaneously a source of its own law, and whether such approach would not rather be an attempt to evade the regulation, which would be prohibited according to the principles of EU law. Moreover, Article 26 of the Regulation only provides for the procedural ordre public, not the substantive ordre public. The latter could apply in connection with the determination and, especially, the effects of the applicable substantive law of national origin as the lex fori concursus; the ordre public exception could in such case at least theoretically be possible from the substantive-law perspective. However, the substantive-law aspects of the situation are already reflected in Article 5 of the Regulation, which provides for the conflict-of-laws exceptions to Article 4 of the Regulation (and, indeed, in substantially all immunity and special provisions of the Regulation, i.e. Articles 5 to 15 of the Regulation). Consequently, it is more than appropriate to examine the purpose of the rule enshrined in Article 26 of the Regulation, i.e. in which situation the recognition and enforcement would have a result that is principally incompatible with the public policy of the respective Member State. No problems arise if the recognition concerns an individual normative act, i.e. an individual court decision rendered in connection with specific insolvency proceedings, for instance, in connection with a creditor’s claim or the bankrupt’s obligation. It is unclear whether the liquidator’s powers in the main insolvency proceedings can be contested and, for instance, their registration be denied in public registers in terms of Article 21 of the Regulation, such as the Land Register, the Companies Register, etc. We may probably agree that the ordre public exception is not applicable in such cases, as it is not applicable for instance in connection with the debtor’s eligibility as a party to the insolvency proceedings (cf. Article 16(2) of the Regulation, or here in the entire context of the Regulation, i.e. especially, though not exclusively, in terms of Articles 3 and 4 of the Regulation, etc.). Similarly, the ordre public exception is also not applicable if, for instance, the rescue plan relating to the bankrupt’s assets (estate) impairs the creditor’s status compared to the option of liquidating, i.e. selling, the estate. Besides, the rescue plan must still rest on the principles that guarantee due procedure, primarily the following principles: (i) each creditor must obtain at least as much as they would obtain if the estate were liquidated, (ii) further operation of the enterprise must be based on a sufficient estate, so that obligations that arise in the future in connection with the due operation of the business will be satisfied, (iii) the absolute priority rule is observed, which requires that the priority satisfaction rights are honored, or that the payment of benefits to lower classes of creditors before satisfaction of the higher classes of creditors is contingent on the latter’s consent, and (iv) the rescue plan for the bankrupt’s enterprise is subject to the court’s consent, and such consent must be withheld if the plan is contrary to laws or good morals, provided that it is approved by the majority of creditors during a separate vote within the individual classes of creditors.
The European Parliament, after a lengthy debate, has eventually approved a reform of Regulation 1346/2000 on cross-border insolvency proceedings (hereinafter, the ‘Insolvency Regulation Recast’), which provides for significant innovations in the original Regulation, such as an EU-wide register of insolvencies and a new proceeding for insolvencies of corporate groups. The fundamental logic of the Regulation, however, does not change: the Recast does not harmonise insolvency rules at EU level and its goal is still selecting competent venues and applicable insolvency regimes. In many respects, the reform simply codifies CJEU’s case law, with the aim of increasing legal certainty. The Insolvency Regulation Recast is, however, innovative regarding the definition of COMI, by repealing the causality relation between criterions of ‘permanence’ and ‘ascertainability’. Eventually, the Recast aims at better coordinating secondary proceedings and main proceedings; in this regard, it introduces ‘synthetic secondary proceedings’, whereby the insolvency practitioner of the main proceeding undertakes to respect other Member States distributional criterions in order to avoid the opening of a secondary proceeding. The real impact of these innovations is, however, uncertain.
Pro-Commerce Outlooks:The Bane of English Corporate Insolvency Law
2021
This article cursorily examines strands of English corporate insolvency law that highlight an overarching pro-commerce approach in marshalling competing rights of stakeholders in the insolvency matrix as well as in resolving insolvency proceedings. In particular, it uses case law (Belmont Park Investment Pty Ltd v BNY Corporate Trustee Services Ltd 1) and legislation (Corporate Insolvency and Governance Act 2020 2) as selectedand decidedly limitedparadigms of this approach. In so doing, this article suggests that while there is typically a wide benefit to this approach in commercial life, it also has the propensity to disrupt the insolvency polity by introducing elements of subjectivity and, pro tanto, uncertainty. Of more concern, however, is that the approach could also inhibit the "creative-destruction" role that insolvency proceedings ought to play in a well-functioning economy.
On the need of special rules dealing with bank insolvencies 1
2000
Contrary to literature on the prevention of bank crisis which is very developed, literature on bank resolution policies and insolvency law is still relatively small even if academic interest is growing. Because of the systemic repercussions of bank crisis which can dramatically affect both financial and real sectors, banks are subject to specific supervision and regulation by prudential authorities. The
2004
C orporate and insolvency law practitioners will be aware that on a number of occasions in recent years poor legislative drafting has resulted in defective amendments being made to the Companies Ordinance (Cap 32). This problem has recently reared its head again, most notably in Re Setaffa Investments Ltd [1998] 2 HKLRD 236 (Le Pichon J). As in previous examples, the difficulties revealed in the Setaffa case were created because the draftsman, when in effect copying UK legislation, did not do a thorough enough job and failed to copy fully the UK legislation. As Le Pichon J noted (at 246), such an oversight would 'hardly be the first time that it will have occurred when Hong Kong legislation is modelled on UK legislation.' The purpose of this article is threefold: (1) to note the decision in Setaffa; (2) to identify a number of other areas in the new insolvency legislation where similar problems have occurred; and (3) to bring to practitioners' attention a practical d i f...