Insolvency Administrator Research Articles

A Comparative Analysis of Litigation Funding in Insolvency Claims and in Class Actions

There is an extensive literature on third party litigation funding (‘TPLF’) of class actions and a separate literature on the longer- standing use of TPLF in claims by insolvency administrators such as liquidators and bankruptcy trustees. Despite this, there has been little comparative study of TPLF in the two species of litigation. This article seeks to fill that gap and, in so doing, draw some distinctions impacting the issue of appropriate regulation in the two contexts. These include salient differences between repeat playing Australian Securities and Investments Commission-regulated professional insolvency practitioners governed under corporate and personal insolvency regulatory architecture and less experienced, less regulated representative plaintiffs in class actions. Further, the existence of vulnerable class members as silent ‘parties’ to class action litigation and funding arrangements and the effect of settlement processes affecting non-responsive class members is noted. These are found to raise differences, despite both types of litigation benefitting from substantial court supervision.

THE RELATIONSHIP BETWEEN NOTARIAL AND BANKRUPT LEGISLATION: SOME ISSUES OF THEORY AND PRACTICE

The article discusses the problems that arise when notaries apply bankruptcy legislation and analyzes judicial practice. Thus, at present there is no uniform position of both the judicial au thorities and the notary community on the validity of powers of attorney issued by the debtor, the legality of the provision of information by a notary to the insolvency administrator. There are a number of problems that arise during the bankruptcy of the testator that are not regulated at the legislative level. Based on an analysis of theory and judicial practice, options for resolving controversial issues are proposed.

Arbitration in Insolvency

The present article highlights the relationship between arbitration and insolvency proceedings. It examines from a comparative law perspective the questions of whether the arbitration agreement remains effective when the insolvency proceedings are opened, whether it binds the insolvency administrator, whether the latter can disengage from it under the rules on executory contracts, and which insolvency-related disputes are covered by it. In particular, it is discussed whether avoidance actions are arbitrable and whether the insolvency practitioner can conclude an arbitration agreement with the opposing party.

Disciplinary liability of insolvency officers: current challenges

In this article we have studied the specific features of the liability of insolvency administrators for disciplinary offenses. The norms of the current legislation (in particular, the Bankruptcy Proceedings Code of Ukraine, the Tax Code of Ukraine, the Labor Code of Ukraine) regarding the determination of the legal status of insolvency officers and the specific features for bringing them to liability have been analysed in the article. The purpose of this research was to study problematic issues related to the liability of insolvency administrators. During the research general scientific methods, in particular dialectical, methods of analysis and synthesis, formal and legal, systematic approach have been used. It is concluded that disciplinary liability in the profession of insolvency officers in Ukraine is of mixed nature. It is partly civil, partly disciplinary and administrative liability -- in its essence -- and is not clearly regulated by the current legislation. Referring to the facts of bringing insolvency administrators to disciplinary liability even for a single offense has, on the one hand, elements of civil liability. On the other hand, disciplinary liability can also be imposed on insolvency administrators.

SMEs filing for bankruptcy in Spain: The best of luck!

The aim of this work is to analyze the factors that help companies avoid liquidation following the spirit of the Spanish insolvency law. This work focuses on the phase starting when companies file for bankruptcy and ending with the completion of the common phase. We apply the agency theory to explain how insolvency administrators and court characteristics influence the outcome of the bankruptcy process (liquidation or reorganization). We analyze unique accounting data from 2,627 companies that filed for bankruptcy during the period 2008–2014. The findings reveal the significant roles played by the liquidation trustee, Big 4 administrators, and higher remunerations, along with the type of court in charge. Processes are more likely to result in reorganization if they are handled by specialized courts, managed by the Big 4, and if the insolvency administrator has longer experience in bankruptcy filing and receives a higher remuneration. These findings have important implications for all the agents involved. It is necessary to rationalize the filing process, foment better training for insolvency administrators, provide courts with more funds, and create more specialized courts. The principal contribution of this article is to examine the role played by insolvency administrators and the courts, and their influence on the outcome of the insolvency process. JEL CLASSIFICATION C35; D21; D22; G33; G38

Going Out of Business: Representing Insolvent Claimants Seeking Investment Treaty Protection in Arbitrations Brought against States (Winner of the Essay Competition 2022)

In light of the continuing covid-19 pandemic, with its punctuating new waves and variants, and the war in Ukraine and accompanying global sanctions, it is likely that the number of insolvent claimants demanding investment treaty protection is on the rise. Against this background, it is the aim of this study to examine who can represent insolvent claimants in arbitral proceedings. In doing so, the authors examine the roles and representative powers of the different stakeholders in cases where an insolvent claimant has sought investment treaty protection in an arbitration brought against a State. By assessing the roles of insolvency administrators, companies’ shareholders and directors, and third-party funders, and analysing existing case law, the study serves as a guide to parties establishing their case strategy and to arbitrators faced with such issues.

Going Out of Business: Representing Insolvent Claimants Seeking Investment Treaty Protection in Arbitrations Brought against States (Winner of the Essay Competition 2022)

In light of the continuing COVID-19 pandemic, with its punctuating new waves and variants, and the war in Ukraine and accompanying global sanctions, it is likely that the number of insolvent claimants demanding investment treaty protection is on the rise. Against this background, it is the aim of this study to examine who can represent insolvent claimants in arbitral proceedings. In doing so, the authors examine the roles and representative powers of the different stakeholders in cases where an insolvent claimant has sought investment treaty protection in an arbitration brought against a State. By assessing the roles of insolvency administrators, companies’ shareholders and directors, and third- party funders, and analysing existing case law, the study serves as a guide to parties establishing their case strategy and to arbitrators faced with such issues.

Гражданско-правовая ответственность арбитражного управляющего: актуальные проблемы

The article is devoted to the consideration of the civil liability of an insolvency administrator in the performance of his duties in the framework of insolvency (bankruptcy) cases. Topical issues related to the civil liability of an insolvency administrator (recovery of damages) are considered. Three issues are identified that stakeholders face in the process of determining, proving and recovering losses. The conclusions about the impact of the mechanism for collecting losses on increasing the efficiency of bankruptcy procedures are summarized.

ОСПАРИВАНИЕ СДЕЛОК В РОССИЙСКОМ СУДЕ В РАМКАХ ИНОСТРАННОГО БАНКРОТСТВА

​ The article addresses the special features of avoidance transactions of a foreign insolvent debtor for alienation of property within Russian Federation. The author argues that the power of the foreign insolvency administrator to bring a claim to challenge the transaction stems from the Arts. 1195–1197 and 1202 of the Civil Code of the Russian Federation regarding the law applicable to the legal capacity of a person. On the separate line the article discusses the issue of law applicable to challenging of various categories of transactions of a foreign debtor. Based on the analysis of the doctrine and judicial practice, the author comes to the conclusion that transactions concluded by a foreign debtor after the introduction of a bankruptcy procedure may be challenged in a Russian court on the basis of the limitation of the legal capacity of a foreign person (Arts. 1195–1197 and 1202 of the Civil Code of the Russian Federation). At the same time, foreign bankruptcy legislation cannot be applied to avoidance of real estate transactions concluded before the introduction of bankruptcy procedure against a foreign debtor due to paragraph 2 of Art. 1213 of the Civil Code of the Russian Federation. The article is concluded with an analysis of the issue of jurisdiction of the claim for challenging the transaction of a foreign insolvent debtor.

RESPONSIBILITY OF DIRECTORS IN BANKRUPTCY PROCEDURES UNDER EU LAW AND INDIVIDUAL MEMBER STATES OF EU

The Bankruptcy Proceedings Code of Ukraine provides for the possibility of imposing liability under the obligations of the debtor – a legal person on the founders (stakeholders, shareholders) or other persons who have the right to give mandatory instructions to the debtor or have the opportunity to otherwise determine his actions. As a result, "comfortable" organizational forms of companies, such as LLCs and JSCs, have become risky for investors; managers, who may be employees, bear risk too. The article analyzes the legislation of the EU and some EU member states (Germany, France, Spain, the Netherlands, Latvia, Romania), concerning the liability of individuals in insolvency proceedings. We find that the rules on such liability are not harmonized at the EU level; as for individual countries, their laws do provide for the possibility of holding both de jure and de facto directors, whereas the latter may include the founders (stakeholders, shareholders) of the company, for the debts of the company. At the same time, the legislation of European countries describes in great detail the conditions and procedure for imposing such liability, which makes the risks for the individuals concerned predictable. Moreover, special rules on liability in insolvency proceedings are systematically linked to the provisions of company law, which establish the obligation of directors to act with due diligence in the interests of the company and liability for knowingly making business transactions with the knowledge that the company is insolvent (wrongful trading). In Ukraine, there are absolutely no specific legal provisions on the conditions and procedure for holding even de jure directors to liable in insolvency proceedings, not to mention the founders (stakeholders, shareholders) of companies, which creates a situation of legal uncertainty. To eliminate it, the legislation of Ukraine should define: the range of individuals on whom such liability may be imposed; a specific list of actions, the commission of which may give rise to liability; the need to prove the guilt of such individuals; forms of guilt sufficient to be held liable (only intent or also negligence); procedural rules for establishing guilt, including the issue of the burden of proof; who may lay claim to a director (insolvency administrator, creditor, court); statutes of limitations on the liability of directors, etc.

Treatment of Disputed Claims in Corporate Insolvency: Evolving Jurisprudence

The introduction of the Insolvency and Bankruptcy Code, 2016 (IBC) in India as a consolidation of insolvency and bankruptcy laws has come with its challenges that have found resolution through judicial pronouncement, regulatory clarification or legislative intervention. One of the key issues in relation to process of corporate insolvency resolution has been in relation to claims against a corporate debtor and when such claims should be made – timing, validity and admission. Here, the role of the debtor, creditor and the insolvency administrator (the insolvency professional) become a subject matter of immediate discussion. In this paper, the authors seek to address the questions surrounding treatment of claims in insolvency resolution and offer next steps while tracing the jurisprudential development related to claims made in corporate insolvency under the IBC.

Das Pfandrecht an Unternehmenszubehör in der Insolvenz

A mortgage typically extends to the movable accessories of a company operating on the mortgaged property. Hence the incorporation of the mortgage into the land register constitutes an adequate mode to establish a lien on the accessories of the company. If the company is later shut down, the lien on the accessories must lapse as a result. After all, there is no longer any company to which the accessories could refer. However, it remains unclear whether the same legal consequence applies if the company is shut down by the insolvency administrator (liquidator) during insolvency proceedings.

Osporena potraživanja i medijacija u srpskom stečajnom pravu - de lege lata i de lege ferenda

In this paper, the author analyses the Insolvency Act's provisions on mediation. Firstly, the author points out the existence of a special legal regime for mediation of disputes related to the determination of claims, which differs from the general regime of mediation. Afterwards, the provisions on initiating mediation proceedings are analysed, with the special emphasis on the persons authorized to submit proposal for resolving a dispute in the mediation procedure according to the provisions of the Insolvency Act as well as the role of the creditors' committee in this regard. Then, the author analyses the issue of the duration and termination of mediation, pointing out the inconsistencies of the domestic solution. Furthermore, the issue of the costs of mediation proceedings in connection with insolvency proceedings is addressed shortly. In conclusion, the author advocates the abolition of restrictions on active legitimacy for submitting proposals for resolving disputes through mediation, prescribing additional competencies of the creditors' committee at the final stage of the mediation procedure in relation to the disputed claims in which the insolvency administrator participates, and providing a single regime of mediation for disputes regarding insolvency proceedings resolution.

Eliciting Weights of Significance of Criteria for a Monitoring Model of Performance of SMEs for Successful Insolvency Administrator’s Intervention

Small and medium-sized enterprises (SMEs) are accounted for as a major part of the economy of the EU in terms of part of the population employed, turnover, value-added, etc. Causes of insolvency of SMEs can be different; they are categorized in the paper. A considerable shift from resolving cases of bankruptcy with the sole aim to satisfy creditors’ rights to augmenting and enhancing liquidation and reorganization procedures evolved interest of the authors in creating efficient bankruptcy prediction models and, in particular, methodologies for evaluation and monitoring of the performance of SMEs. In the paper, we reviewed several initiatives and instruments created by the EU for supporting SMEs. The paper laid a foundation for creating a more comprehensive methodology for evaluation of the state of a firm undergoing the process of reorganization. A hierarchy structure of criteria for the evaluation of SMEs was used in the paper; methodologies for eliciting weights of importance of criteria from experts and gauging the level of concordance of opinions of experts were applied. Resulting weights of criteria of performance of an insolvent SME were obtained; the importance of the managerial category of criteria was revealed. Prominent features of hierarchy structures and methodology of using the structure for calculating ultimate weights were described and demonstrated. Gauging concordance of opinions of experts revealed a satisfactory level of concordance of opinions of experts; this allowed to prepare the ultimate weights of criteria for multiple criteria evaluation of SMEs for further research.

The balance of power between creditors and the firm: Evidence from German insolvency law

In 2011, German legislators passed the latest reform to German Insolvency Law (ESUG). ESUG mandates that creditors of larger firms can exert more influence on the appointment of the insolvency administrator, resulting in a shift of power from shareholders to creditors. Based on difference-in-differences estimation, we find that larger firms reduced financial leverage by about 4–7 percentage points relative to control firms. Furthermore, after the enactment of ESUG, larger firms spend less money on investment and pay higher interest rates. Overall, the evidence is consistent with the view that German creditor protection has become too strong.

Collateral in Public Register as a Security of Private Debt

This article deals with approaches to establishment of the collateral. Registration in public registers is a precondition to establish a mortgage and a commercial pledge, where the first one is recorded in the Land Register, while the second – in the Register of Commercial Pledges. Unlike the mortgages, execution of rights to a commercial pledge depends not only on registration, but also on whether a pledgee has taken actual possession of property. Taking of possession has not been expressly set forth by Latvian laws. It is necessary to specify the moment in legal acts when the pledged property was actually taken into possession. The subject of a mortgage is immovable property. The subject of a commercial pledge is movable property. Immovable property cannot be the subject of a commercial pledge. Distinction between movable and immovable property may lead to a situation when a holder of the commercial pledge loses the collateral due to the fact that the subject of pledge, once moveable, has turned into immovable property. The collateral is also endangered by the fact that public reliability is not necessarily always attributed to all public registers in all situations. Legal regulation of the register of commercial pledges more corresponds with the principle of public reliability. This principle, however, is not clearly defined for land registers and is variously interpreted by courts, thus leaving negative influence upon the stability of pledge rights. It is highlighted in Latvian law that existence of the collateral depends on whether there is a claim secured by a pledge (accessoriness). Current practise differs from that in the interwar period in Latvia. The difference lies within such secured claims that cannot be executed by force due to the limitation period or other reasons. Such changes in practise have led to the situation when secured claims may not be executed in case of insolvency of a debtor if the creditor has been in default to apply his claim within the term set by the insolvency administrator.

Uloga informaciono-komunikacionih tehnologija u vođenju procesa stečaja

The aim of the paper is to present the results of the research carried out on the territory of AP Vojvodina with the goal of determining the extent to which information communication technologies are used in the management of the insolvency process. The problem that arises during the initiation of insolvency proceedings is the lack of relevant information. Companies that are in a pre-insolvency situation usually do not have enough resources to maintain their information system. The lack of a clear strategy, the means and the will to maintain an up-to-date information system for companies that are about to face insolvency is another reason that leads to problem. On the other hand, the insolvency administrators are limited by procedures and rules they have to respect, and also the majority of insolvency administrators have their own information system. The survey included 34 of the 262 active bankruptcy administrators.

PRE-PACKED INSOLVENCIES

This paper focuses on pre-packed insolvencies prepared in the Czech Republic according to Act No. 182/2006 Coll. on bankruptcy and settlement. The analysed time period covers the years 2008-2017. The data sample contains all identified pre-packed insolvencies from the insolvency register and the financial data was extracted from the Albertina corporate database. Pre-pack insolvencies are insolvencies that begin with an insolvency proposal and accompanied by a reorganisation plan already approved by creditors. First, the paper describes the sample from different points of view and is focused on the size of the enterprise, the field of activity, the length of insolvency proceedings and the proposed insolvency administrator accompanied by an expert. Second, the paper analyses the financial situation of affected companies. The evaluation of the financial situation is based on IN indices. The insolvency proposal with a suggested reorganisation can be solved differently. The reorganisation does not need to be approved by the court or if approved, can be turned in the bankruptcy during the insolvency proceedings. The results of pre-packed insolvencies in the case of successful rehabilitation or bankruptcy are the most important findings.

Bankruptcy reforms in the midst of the Great Recession: The Spanish experience

We make use of a unique data set of corporate insolvencies in Spain to assess the effectiveness of the four reforms to the Spanish bankruptcy code implemented during the Great Recession (2008–2013). One of the reforms decreased the average duration of insolvency procedures by increasing the appeal of private workouts as an alternative to formal bankruptcy. Two of the reforms increased the percentage of reorganisations by increasing the quality of insolvency administrators and reducing the costs of financial distress. The impact was larger in firms with lower liquidation values and higher going concern values, suggesting an increase in ex-post efficiency. By contrast, two of the reforms did not achieve their goals and failed to have any robust impact on those dimensions. Our research illustrates the important role that insolvency administrators may play in the design of an efficient bankruptcy system, as well as the need for a legal framework that supports out-of-court workouts as an alternative to formal bankruptcies. More generally, our results highlight the importance of evaluating bankruptcy reforms before assessing their impact on other dimensions such as credit, firm financing and investment.

Insolvency administrator\u2019s incentives and the tradeoff between creditor satisfaction and efficiency in bankruptcy procedures

An insolvency administrator replaces the manager of an insolvent firm to devise and organize a liquidation or reorganization plan in the creditors’ interest. In the course of the process, the insolvency administrator presents the most favourable option from his perspective, and the creditors choose to accept or reject this plan. Conflicts of interest arise because the insolvency administrator, as the better-informed party, considers in his proposal liability risks and reputational issues that are beyond the creditors’ scope. We model this conflict as a Bayesian game and find that, under those compensation schemes typically used in real-world regulations, optimal creditor satisfaction and efficient decisions concerning the economic future of the insolvent firm will never be achieved simultaneously.