When Pan-European Insolvency Twilight Lasts for Years: Are Controlling Lenders Liable?

Abstract

Companies structured for project finance can be prematurely failed by European insolvency laws, where there is a strict obligation to file for insolvency if the required solvency tests have been failed. Using two technically insolvent windfarm projects in Poland and Romania, this article analyzes why each debtor continued to trade in breach of the law and why the lenders permitted such continued trading. Although facing liability, the directors of the debtors could see that through continued trading the debtors would eventually pay off the secured debt, and the project and the profits could be returned to the shareholders. The debtor had this confidence because of the project finance nature of infrastructure where there is good long-term visibility of cashflows. This article critically analyzes the national insolvency laws for infrastructure projects in Poland and Romania and considers whether the lenders in each case, by allowing the debtors to trade, should share some of the potential liability.