Context Of Insolvency Research Articles

The purpose of directors' duties in the insolvency context: A critical assessment based on empirical data from Austria and Netherlands

AbstractThis paper examines the evolving discussions on directors’ duties in the insolvency context within the EU, particularly in light of recent harmonisation initiatives such as the 2019 Directive on Restructuring and Insolvency and the 2022 Proposal mandating a duty to file for insolvency. Using empirical data from Austria—a jurisdiction with a duty to file—and the Netherlands, which lacks this duty, the study investigates the potential impact and practicality of such requirements. Findings reveal that while Austria and the Netherlands have different frameworks, similar issues in enforcement and compliance emerge in both. These results suggest that imposing stricter or more explicit norms on directors across the EU may not effectively achieve policy goals, especially if financial constraints on enforcement remain unaddressed. We advocate for a policy approach that focuses on practical outcomes and enforcement capacity.

Voidable title in the sale of goods: One power to rescind, or two?

This article explores common law rescission within the sale of goods. It examines the proposition that the rescinding-claimant has a kind of legal, proprietary interest (a ‘power in rem’) to rescind a voidable contract of sale and revest legal title to the goods. This power is considered to be ‘proprietary’ because it binds third-party recipients who cannot plead good faith purchase, and it survives the recipient’s insolvency. The problem is that the data does not fit the theory; in truth, there is every reason to believe that the claimant has only a personal claim to rescind the contract of sale, with legal title revesting by operation of law thereafter. As a result of this analysis, we must: (i) reject the main academic account of this area of law (the ‘dual power’ analysis); and (ii) revisit the treatment of common law claims to rescind in the insolvency context.

Mirroring the American Bankruptcy Code? IP Licences in the European Insolvency Harmonisation Project

Abstract With the growth of the licensing of Intellectual Property rights in the global economy, the insolvency treatment of licensing agreements has also taken on greater importance. This paper analyses the treatment of intellectual property licences under the European Commission’s new Directive Proposal 2022/0408/COD, the flagship law of the European insolvency harmonisation project. The paper focuses on the Proposal’s approach in cases where the debtor’s business, or part of it, is sold as a going concern in the pre-pack context. It contrasts the European response to the US Bankruptcy Code, which serves as a significant source of inspiration, and provides examples of how some EU Member States handle such cases. In substance, the paper examines the Commission’s steps towards harmonising the treatment of IP licences in insolvency. Considering the insolvency context and the needs of the parties to the licence, it critically analyses not only the expediency of implementing specific regulations but also the effectiveness of the means employed. Finally, the paper provides some suggestions to amend the Proposal and highlights the necessity to revisit the broader debate over the treatment of IP licences in European insolvency legislation in general.

The development of an insolvency privilegle for derivatives in German law

The article outlines the development of insolvency privilege with respect to derivatives under German law in its historical perspective. It traces the evolution of special privilege from the moment when it was first announced in the German insolvency statute (Insolvenzordnung) and came into force on August 1, 1994, up to the moment when legislative provisions securing the functioning of derivatives in insolvency context were amended in response to the 2016 Federal Court of Justice Verdict. This court ruling ended the long-standing consensus on “friendliness” of the German insolvency law to derivatives and other financial transactions. German highest court concluded that contractual clauses on the termination of obligations under derivative contracts in the event of bankruptcy are invalid unless their legal result is identical to the one prescribed by law. This court decision created significant legal uncertainty for recognition of claims under derivative transactions and directly influenced the use of standard master agreement for over-the-counter derivatives. Drafted under the auspices of the German Banking Union (GBU), an organization representing the interests of German financial institutions, German Master Agreement for Financial Derivatives Transactions ( Deutscher Rahmenvertrag fur Finanztermingeschäfte ) provided a contractual framework for the relevant market, and it came under significant pressure. Overall, German insolvency rules were significantly enforced to achieve the enforceability of close-out netting thus expanding the insolvency privilege for derivative transactions.

Natural person ltd.: Towards a unified discharge regime for entrepreneurs and consumers

AbstractPersonal insolvency proceedings are increasingly fulfilling an economic function, aimed at the rehabilitation of the debtor. The idea of the fresh start and second chance, including an early discharge of residual debts, is an important illustration thereof. Despite the fact that this evolution is noted in all personal insolvency procedures, both with regard to entrepreneurs and consumers, debt discharge used to be easier to justify and more readily granted to entrepreneurs (traders) than to non‐entrepreneurs. Clear examples of the discomfort legislators seem to have with discharging unpaid debts of consumers are the EU Member States that differentiate between commercial and consumer insolvency procedures. In addition, the narrative of promoting entrepreneurship is now driving EU insolvency reforms. That (narrow) focus leads Directive 2019/1023/EU to make the same distinction between insolvent individual entrepreneurs and other natural persons, offering the former a full discharge of debt after a reasonable period of time, while providing no mandatory discharge principles for the latter. This means that not all natural persons are equal when it comes to the possibility of having a second chance, despite compelling evidence that shorter discharge periods lead to more productive individuals. The question therefore arises as to whether EU Member States should run separate discharge systems for entrepreneurs and consumers, and whether this is justified in relation to its purpose. Focusing on natural persons in an insolvency context, this article argues that the objectives of providing a fresh start and second chance, by promoting debt discharge, are as relevant for consumer debtors as they are for entrepreneurs.

Determinants of Failure ... and Success in Personal Debt Mediation

For nearly thirty years, legislators in Europe and South America have looked to mediation as a preferred mechanism for resolving the rising problem of personal overindebtedness. This reliance has generally been misplaced, as voluntary personal debt conciliation has most often ended in failure. In some cases, however, mediation has fulfilled its promise of unburdening the court system and reconciling debtors and creditors gracefully, without formal intervention. What distinguishes failure from success in this context, and might legislators enhance the efficiency and effectiveness of personal insolvency regimes by incorporating these lessons? This article offers some insight into these questions and proposes a new approach to mandatory mediation in the personal insolvency context. It reviews the institution of mediation as a prerequisite to court-driven personal insolvency proceedings in both longstanding systems--in France, Germany, Austria, and the Netherlands--as well as more modern regimes--in Ireland, Colombia, Chile, and Spain. After reviewing data on the failures and successes of these debt mediation mandates in recent years, this article reflects on how these results square with the predictions of mediation theory. Salient theoretical determinants of mediation success are then extracted and applied to the empirical experience of personal debt mediation. In particular, mediation theory and experience offer compelling explanations for both successes and failures in the contexts of mortgage foreclosure mediation (most notably in the United States following the financial crisis) and negotiated personal debt workouts in the modern United States and Europe, with surprising parallels from the world of Classical Islam. A framework for predicting successful personal debt mediation thus emerges, providing a foundation for a more sensible and selective approach to mandatory mediation in the personal insolvency context.

The UNCITRAL Model Law on Cross‐border Insolvency and the Rule of Law

AbstractThe rule of law is a concept that was often considered in the context of national legal systems. However, it is now commonly being promoted as significant in the transnational context. This paper addresses its importance within the transnational economic and commercial context, in particular in response to cross‐border insolvencies. It examines how the UNCITRAL Model Law on Cross‐border Insolvency and its Guide to Enactment and Interpretation promote key tenets of the rule of law in transnational disputes arising out of businesses in financial distress. In particular, some examples are provided of cases from the Asia‐Pacific region in which the Model Law has been applied to demonstrate how the rule of law may be promoted in an insolvency context. Finally, the paper concludes that the adoption of the UNCITRAL Model Law on Cross‐border Insolvency promotes transparency, accountability and predictability, which in turn support stability in financial systems and credit relationships and thus trade within a global market. This is a direct result of adherence to elements of the rule of law principle. Copyright © 2016 INSOL International and John Wiley & Sons, Ltd. Copyright © 2016 INSOL International and John Wiley & Sons, Ltd

A Symbiosis of International Arbitration and International Insolvency Law Interception & Assistance

This paper explores the assistance that can be had of international arbitration in international insolvency cases. As an operational scheme, they have hitherto operated in separate worlds, by and large without intersecting. They stake-holders need to develop understanding of the applicable laws of arbitration and insolvency, given the acknowledgeable role of international arbitration in the international insolvency proceedings. This paper examines the issue in seven parts. Part I walks through the structural firmament of international arbitration and insolvency laws, very briefly. Part-II advances perspectives with regard to their processes and applicability operations. Part-III looks for locus standi of using legally the arbitration in international insolvency cases against the backdrop of E.U. Insolvency Regulation and UNCITRAL Model Law. Part-IV explores enabling mechanism to enable the interaction of two areas, of international insolvency and international arbitration. Leading to Part V, this paper delves into possible uses of arbitration in international insolvency cases. Logically, then Part VI seeks to audit the process- the limitations inherent in the arbitration proceedings (of New York Convention), of processes borne out of relationship between the two and unavoidable features of arbitration. While Part VI explores the procedural limitations, Part VII discusses the possibility of intersection in terms of extant public policy of the stake-holder jurisdiction- the issues of public law qua private law, and assessing arbitration in terms of public policy. In conclusion, a sweeping obiter dicta attendant on the foregoing analysis wraps this paper observing that there is a need to further explore and elaborate the intersection of arbitration proceedings in insolvency context, and that much enterprise could be profitably done in this area.

Editor's Column

Hello Everyone,Happy New Year!This Winter Issue has an interesting group of articles: Andre Loeffler's article, “Why Total Beta Produces Arbitrary Valuations: A Violation of the ‘No Arbitrage’ Principle,” should stir some in our community. Michael Emaleh's article, “A Compensation-Based Method of Valuing Small, Closely Held Businesses” should be of interest to those valuing small businesses. Gil Matthews' article, “Capital Expenditures, Depreciation and Amortization in the Gordon Growth Model,” is near and dear to my heart, having written a couple articles published in the Business Valuation Review over the years. Dwight Grant's article, “Thoughts on Calculating DLOMs,” presents additional perspectives regarding a topic that has real dollar impacts to taxpayers and others. Mike Vitti provides an epilogue to his massive work on valuation in the insolvency context that we have had the privilege to publish over the last three issues.Next issue, volume 34.1, Spring 2015, will contain, among other articles, Eric Sondheim's “Implied Volatility and Volatility Smiles in Option-Pricing-Based Security and Business Valuations” and Joseph Thompson's “Expanding an Appraiser's Toolbox with Credit Default Swaps.” These will offer concepts and information that we have not seen a lot of.Sincerely,Daniel L. McConaughy, PhD, ASA

The Judicial Reorganization Procedure: The Moment of a Paradigm Shift

This work, with its focus on the place and the function of the judicial reorganization within the insolvency procedure and the perspectives of this procedure, is published in a period of turmoil and economic transformation, but also during a period of legal settlements and crystallization, which calls for analysis and doctrinal clarification. In the general context of insolvency, the judicial reorganization began to gain a place at the forefront, but the process has not yet been completed, leaving room and premises for future developments. The very evolution of Romanian society in general and of the business environment in particular require further development of the institution of judicial reorganization and the redefinition of the status thereof, for the purposes of imposing it as the mandatory procedure or rule in all insolvency procedures. In this context, I feel that the time has come for the judicial reorganization procedure, part and essential step of the insolvency procedure, to make a qualitative leap in its natural evolution. In other words, it is time for a true paradigm shift in the judicial reorganization.

An Introduction to Shari'ah Considerations in Bankruptcy and Insolvency Contexts and Islamic Finance's First Bankruptcy (East Cameron)

This paper is an introductory survey of bankruptcy and insolvency theory and practice relating to the introduction of Shari'ah principles into secular bankruptcy and insolvency regimes in both jurisdictions that incorporate the Shari'ah, to some extent, into the secular law of the jurisdiction and purely secular jurisdictions. The paper first summarizes some of the Shari'ah principles that are applicable in the bankruptcy and insolvency context. Thereafter, the paper notes the general nature of the secular bankruptcy and insolvency regimes currently in use and summarizes some current practices that are of relevance in the distressed debt, bankruptcy, insolvency, reorganization, restructuring and workout markets, particularly in jurisdictions that have adopted or may adopt a reorganization methodology (such as Chapter 11 or the UNCITRAL model insolvency law). Finally, the paper summarizes certain aspects of the bankruptcy proceeding involving the East Cameron oil and gas sukuk as an example of a secular bankruptcy proceeding involving a Shari'ah-compliant instrument and transaction.

Court of Appeal rules on trust status and client money protection in relation to Lehman Bros funds

PurposeThe purpose of this paper is to discuss the Court of Appeal's consideration regarding Lehman Bros International (Europe) (in Administration) (Court of Appeal: Civil Division: Lord Neuberger, Lady Justice Arden and Sir Mark Waller). Date of Judgment: 2 August 2010.Design/methodology/approachThe paper outlines the facts surrounding the case and comments on the decision.FindingsThe court ruled on trust status and client money protection in relation to Lehman Bros funds.Originality/valueThis judgment provides a rare example of the courts' application of the Client Assets Sourcebook rules and guidance in general private law disputes about property ownership and entitlement that invariably arise within the context of insolvency.

Abuse of Law in the Context of European Insolvency Law

Abuse of law is a concept that can be found in the private laws of many jurisdictions in the world. The European Court of Justice has recently resorted to the concept quite often when dealing with the reach of the fundamental freedoms guaranteed by the EC Treaty. This article applies the abuse of law concept to European insolvency law questions. Of central importance here are the rules determining jurisdiction to open main insolvency proceedings under the European Insolvency Regulation (EIR). Such jurisdiction is tied to a debtor's ‘Centre of Main Interests’ (COMI) which can be changed – abusively. The article starts by exploring the context of the debate on abuse of law with respect to European insolvency law. It is characterised by regulatory competition between the Member States. The general elements of the abuse of law concept are then presented. It is an interpretative concept that looks at the dominant purpose of a particular legal provision. The article explores this concept with respect to potential abuses of freedom of establishment on the one hand and the EIR on the other hand in an insolvency context. Its main thesis is that COMI shifts that evidently do not contribute to maximising the debtor's net assets are abusive. COMI shifts that evidently benefit the debtor at the expense of its creditors or some creditors at the expense of others fall into this category: they are driven by distributive rather than by efficiency concerns. The article concludes with a proposal to amend the EIR such that reliance on the abuse of law concept to prevent opportunistic COMI shifts would be less pressing.

Comparative Personal Property: The Case of Shares

1.1 Nowadays shares are the primary store of wealth and have taken on the special position that used to be of land. Shares can be studied in company law and in the law of personal property. The subject remains the same, but the emphasis changes. This thesis analyses shares in and from the perspective of personal property. Two things follow, one represented by the ordinary vocabulary of property, the other to do with the definition of property. Thus, first, the vocabulary of property points to recurrent concerns of that area of law such as acquisition and protection, whereas the intricacies that characterise shares as the object of company law fade into background. Secondly, shares as personal property call for a more technical meaning of property as 'proprietary rights', as opposed to the generic meaning of property as 'wealth'.1.2 Shares are movables of an exceptional nature, because they do not comply with the rules dictated for ordinary chattels or intangibles. Traditionally, property in shares is acquired by entry of the transferee's name in the register of the company. Nowadays shares can also be held and traded through new market mechanisms: computerisation and globalisation have exacerbated the difficulties of legal analysis.1.3 Property rights in company shares have dominated major recent common law litigation. This litigation is often about companies becoming insolvent after dealing with the shares in a fiduciary capacity, e.g. as brokers or custodians involved in the trading of securities. There are obviously many aspects of ordinary stories of bankruptcy: those of company or insolvency law are usually given great attention. Somewhat surprisingly, the proprietary aspects have been neglected. This reflects the seeming indifference of the literature and of English law schools in the law of general property. A comparative perspective can help to make good this deficiency. It recurrently escapes legal observation that many claims in an insolvency context are no more than attempts to establish the priority of one's proprietary interest in the securities over other creditors.Acquisition and protection of property rights in shares are better tackled by observing how analogous problems are solved in other legal systems. The ultimate aim of this thesis is to gain some comparative insight from the standpoint of English and Italian law, thus verifying the actual meaning of some categories of the law property, among which ownership and possession, vis-à-vis the cases.

Taking Future Claims Seriously: Future Claims and Successor Liability in Bankruptcy

Treatment of contingent tort liabilities when a business is sold presents a particular challenge for corporate and bankruptcy law. In this article, I focus on the precarious position of future tort claimants-those who may be harmed by a manufacturer's defective product after the manufacturer has sold its business and disappeared. By the time the future claimant's injury occurs, she may be left with no means of recovery. While the article focuses primarily on the bankruptcy sale context, a discussion of the nonbankruptcy context provides important background. With respect to the nonbankruptcy context, I discuss the doctrine of successor liability and the controversy concerning its various proffered rationales. I conclude tentatively that a cost internalization approach is the most plausible. One consequence of a cost internalization approach is that its applicability in the insolvency context is questionable. If the manufacturer is insolvent at the time of sale, then any acquirer should take free of successor liability risk. Insolvency means that the manufacturer's equity capital has already been exhausted at the time of sale. Therefore, any costs shifted by virtue of the acquirer's discounted bid price would simply be shifted from one set of the manufacturer's creditors to another. While there is good reason to prefer future claimants over the manufacturer's shareholders-which under a cost internalization theory is the effect of successor liability if he manufacturer is solvent-there may not be good reason to prefer future claimants over other creditors of the manufacturer. This observation, coupled with the transaction costs that successor liability creates, suggests that the doctrine should not apply in the insolvency context. In the bankruptcy sale context, proper treatment of future claims and any attendant successor liability rights is also an unsettled question.I argue (1) that future claims should always be accounted for in the bankruptcy proceeding in which a business is transferred, and (2) that once that is accomplished, attendant successor liability rights may properly be eliminated. Inclusion of future claimants in bankruptcy's common pool is necessary in order to provide complete relief to the debtor and assure survival of the going concern. It also vindicates bankruptcy's norm of equal treatment. Provided future claims are included in the bankruptcy distribution, that should be their exclusive remedy. They do not deserve a second recovery that post-bankruptcy successor liability would provide. Neither of these prescriptions, however, is a given under current law.In the mass tort context, future claims are included in bankruptcy because they must be in order for the business to survive, but otherwise they are ignored. Recent reform proposals seem to condone such inconsistent, result-oriented treatment of future claims in bankruptcy, as theorists call for a approach. I argue that in the bankruptcy sale context, a flexible approach merely enables exploitation of future claimants. Much like the situation outside of bankruptcy, a flexible approach enables other parties to leave losses with future claimants if that strategy will maximize returns to those other parties. With respect to disposition of successor liability claims following bankruptcy, the courts are in disarray. That future claims are ordinarily ignored in bankruptcy has caused certain courts to proclaim that future claimants' successor liability rights may never be affected by bankruptcy. I suggest that this view stems from a misapprehension concerning the proper rationale for successor liability. From a cost internalization perspective, it becomes clear that as long as future claims are accounted for in bankruptcy, successor liability rights should not survive. Finally, I discuss implementation of mandatory inclusion of future claims in the bankruptcy sale context. I propose a low cost alternative to the mass tort model, which I refer to as Commensurate Discounted Assumption.