Insolvency Law Reform Research Articles

India's Journey towards Cross-Border Insolvency Law Reform

India's Journey towards Cross-Border Insolvency Law Reform

Mid-Crisis Restructuring Law Reform in the United Kingdom

Economic shocks create insolvency law-making space, generating opportunities for legal reform that may be absent in good times. Policymakers may suddenly acquire a mandate to resource institutions or drive through a change in the law where in good times such reforms were likely to be foiled by interest group capture, or simply unlikely to get sufficient political traction. A crisis, then, is an opportunity for the well-prepared insolvency policymaker. Insolvency rule-making in crisis conditions is, however, plainly also risky. Making best use of the opportunity implies making more than temporary changes to the regime. But design choices made mid-crisis will almost inevitably be influenced by the features of the crisis itself, generating a risk that the result of the reform effort will be distorted law, ill-suited to the achievement of the lawmaker’s objectives in the long run. This paper considers the permanent restructuring law reforms enacted in the UK during the first wave of the Covid-19 pandemic. At first glance, these reforms appear to exemplify the case of the well-prepared policymaker, poised to drive through carefully planned changes to the law when the opportunity arises. On closer inspection, however, a different picture emerges. The permanent measures, which were enacted in a fast-track legislative process, departed from the Government’s pre-pandemic plan in material and undesirable ways. In some cases, these deviations mean that the original objective has not been achieved at all; in others, the objective has been at least partially achieved, but at unnecessary cost. Overall, the UK experience appears to better exemplify the risks of attempting insolvency law reform in a crisis, than the opportunities that a crisis affords to an insolvency policymaker.

A comparative analysis of the Australian and New Zealand liquidation schemes

AbstractOn September 28, 2022, Australia announced an inquiry into the effectiveness of its corporate insolvency laws. The Australia and New Zealand corporate insolvency frameworks have similar objectives and operate in a similar context where, as is the case the world over, most companies are small to medium enterprises. Despite liquidation being just one of several collective and formal corporate insolvency procedures, it is the most frequently occurring procedure in both countries by a large margin. The Australian and New Zealand liquidation schemes have many similarities but also some key differences. Differences include the structure of the respective schemes; the levers prompting liquidation of companies in appropriate circumstances; the role of creditors, the court and the regulator; and the management of low‐value and assetless liquidations. These differences are analysed to determine what, if anything, the New Zealand scheme might contribute to development and/or reform of Australian corporate insolvency law. As consistency and coordination with Australian insolvency law is a New Zealand policy aim, the lessons the Australian scheme might have for New Zealand are also considered. Many of the points on which the Australian and New Zealand liquidation schemes differ are of universal concern (such as the management of low‐value liquidations), meaning that the nature and success (or otherwise) of the Australian and New Zealand responses are of wider, comparative interest.

The Italian Insolvency Law Reform

The Italian insolvency and pre-insolvency frameworks have been reformed recently (2019, due to enter into force in September 2021 but now probably in 2022). This article recalls the intense period of reforms in Italian insolvency law, started in 2005 and culminated with the new ‘Code of enterprise crisis and of insolvency’. The Code introduces new rules for court-confirmed debt restructuring agreements (similar to schemes of arrangement) and judicial composition with creditors, as well as with regard to new rules for insolvency of groups, international jurisdiction and directors’ liability. The article addresses these novelties pointing out some unresolved issues. Finally, the article touches upon the compatibility of the new law with the Directive on restructuring and insolvency (Directive 2019/1023). Autonomy of sport, Private International Law, Public-private Governance, Corruption, Transnational Legal Order, Sports Economy, Legal Status of Sporting Organisations, Audit, Managerial Transparency, Economic Monitoring, International Sporting Convention

Best interest of creditors test in the EU Directive 2019/1023 on Company Restructuring. Proposed reform of Spanish Insolvency Law. BIoC-Test

Best interest of creditors test in the EU Directive 2019/1023 on Company Restructuring. Proposed reform of Spanish Insolvency Law. BIoC-Test

Nietzsche's ‘Eternal Recurrence’ and the renaissance of English and Welsh insolvency law reform

AbstractFriedrich Nietzsche proposed the ‘Eternal Recurrence’ thought experiment in his book,The Gay Science(1882). Drawing on ancient Greek and Indian philosophy, Eternal Recurrence is the idea that with infinite time and matter events will occur again and again without end. While not (quite) infinite, English and Welsh insolvency law does have a sufficient and significant history that reveals numerous examples of this phenomenon of repetition. This paper examines some of the patterns of repetition within the law and reform processes and how ‘broad’, ‘narrow’, and ‘deep’ Eternal Recurrence applies to English and Welsh insolvency law. Three examples of Eternal Recurrence are examined: (1) the plight of the unsecured creditor; (2) the quest for protection, including the use of security devices; and (3) the accountability of directors in corporate insolvency, with specific reference to human rights protection for directors versus insolvency law objectives for the benefit of creditors. Finally, suggestions are provided as to why ‘insolvency’ Eternal Recurrence is problematic, particularly for law reform development and the reform of insolvency law in England and Wales.

The Italian Insolvency Law Reform

The Italian insolvency and pre-insolvency frameworks have been reformed recently (2019). This paper recalls the intense period of reforms in Italian insolvency law, started in 2005 and culminated with the new ‘Code of enterprise crisis and of insolvency’. The Code introduces new rules for court-confirmed debt restructuring agreements (similar to schemes of arrangement) and judicial composition with creditors, as well as with regard to new rules for insolvency of groups, international jurisdiction and directors’ liability. The paper addresses these novelties pointing out some unresolved issues. Finally, the paper touches upon the compatibility of the new law with the Directive on restructuring and insolvency.

Insolvency law reform in Australia and Singapore: Directors' liability for insolvent trading and wrongful trading

AbstractThis article compares reforms to directors' liability for insolvent trading in Singapore and in Australia. We analyse the law in these two countries because they are important Asia‐Pacific trading partners and their laws were originally largely the same—Singapore's law on insolvent trading reflected the law in Australia from the 1960s. However, the law in the two countries has now diverged substantially. The comparison of these two countries therefore represents an interesting case study in how countries differ in their approaches to balancing the competing interests evident in laws that impose personal liability on company directors for insolvent trading. Reform of the prohibition against insolvent trading was a focus of Australia's insolvency law reforms in 2017, which led to the introduction of a safe harbour for directors from liability. Singapore's omnibus insolvency law reforms of 2018–19 include amendments to update Singapore's fraudulent and insolvent trading provisions by introducing a concept of “wrongful trading.” The article finds that there are some areas of convergence between these two jurisdictions when it comes to debates about such provisions but concludes that the different contemporary legislative histories in Australia and Singapore have affected their approaches to reform. Reformers in both jurisdictions have attempted to find an appropriate balance between protecting creditors, discouraging director misconduct, and encouraging entrepreneurship and innovation; however, this comparison suggests that the weight that reformers place on creditor protection compared with the concern that excessive personal liability can make directors unduly risk‐averse is influenced by their existing legislative framework and experience of those laws. Although Australia has shifted away from a strict focus on creditor protection, to give directors more opportunities to engage in restructuring, Singapore's amendments may provide a more creditor‐friendly regime.

The Rise of Covenant-lite Lending and Implications for the UK’s Corporate Insolvency Law Toolbox

Abstract This article is, so far as the author is aware, the first to examine in detail the implications of the explosion of covenant-lite loans for English corporate insolvency law. Covenant-lite loans lack certain early warning mechanisms that have traditionally been found in loans to heavily indebted borrowers. Concerns about the implications of covenant-lite loans have been raised in the broadcast and print media, and by economists and central banks in England and the United States. This is an issue that matters to us all. This article argues that covenant-lite lending means that lenders and borrowers may start restructuring negotiations when the scale of the distress is acute, implicating operational and financial liabilities. It provides a detailed analysis of the additional corporate insolvency law tools which may be needed as a result, and explains why this analysis is relevant for the detailed working out of current corporate insolvency law reform proposals.

Alternatives to Bankruptcy in South Africa that Provides for a Discharge of Debts: Lessons from Kenya

The problems faced by debtors in South Africa is not that there are no alternatives to insolvency proceedings, but that the available alternatives do not provide for a discharge of debt as with a sequestration order, which is ultimately what the debtor seeks to achieve. Debtors in South Africa can make use of debt review in terms of the National Credit Act 34 of 2005 or administration orders in terms of the Magistrates' Court Act 32 of 1944 to circumvent the sequestration process. However, both debt review and administration orders do not provide for a discharge of debt and provide for debt-restructuring only, in order to eventually satisfy the creditor's claims. Attention is given to the sequestration process and the alternatives to sequestration as they relate specifically to the discharge or lack of a discharge of a debtor's debts. The South African law is compared to Kenyan Law. This article seeks to analyse the alternatives to the bankruptcy provisions of the newly enacted Kenyan Insolvency Act 18 of 2015 in order to influence the possible reform of insolvency law in South Africa. Like the South African Insolvency Act, the old Kenyan Bankruptcy Act (Cap 53 of the Laws of Kenya) also did not have alternatives to bankruptcy. The old Kenyan Bankruptcy Act, however, contained a provision on schemes of arrangement and compositions. The Kenyan Insolvency Act now caters for alternatives to bankruptcy and provides a wide range of alternatives to bankruptcy, some of which allow debtors in different financial positions to obtain a discharge.
 

The role of the ISA 570 “Adverse key financial ratios” in going concern assessment in Italy

This study aims to identify if financial ratios may be useful tools to assess whether an entity may incur in going concern matters and, as a consequence, in a Going Concern Opinion. Starting from an IAASB suggestion reported in the ISA 570 and our previous investigation establishing which financial ratios are most widely used in professional practice by auditors for this type of evaluation, our research is focused on verifying their effectiveness. In particular, an empirical analysis, based on a logit model and than a discriminant analysis, performed on a sample of Italian listed companies confirms the importance of the relations between the net financial position and the cash flow from operations, as well as the relevance of the equity on debts ratio. The results would help auditors and directors to focus on the synthetic indicators that are the most relevant in the financial sustainability evaluation, but they may also be considered by the Italian Legislator that is implementing the new Italian Insolvency Law Reform to fix the synthetic indicators which are able to warn stakeholders regarding the risk of insolvency.

The objectives of corporate insolvency law: lessons for Uganda

PurposeThis paper aims to provide guidance to law reformers in Uganda on the best approach to insolvency law reform and the objectives that should be furthered.Design/methodology/approachThis paper provides a literature review.FindingsA balance of various objectives serves the purpose of a modern insolvency law system.Originality/valueThese findings would enable future reforms in Uganda to be streamlined towards a particular objective rather than a general approach to insolvency regulation.

The Rise and Fall of Fear of Abuse in Consumer Bankruptcy: Most Recent Comparative Evidence from Europe and Beyond

Prepared for a symposium celebrating the groundbreaking career of Jay Westbrook, this paper examines recent evidence of fear of abuse of the benefits of consumer bankruptcy and the gradual abatement of that fear in modern consumer insolvency law reform. It marshals evidence of a recent and accelerating retreat in both the judicial discretion that Westbrook in the mid-1990s attributed to lawmakers’ fear of abuse, as well as other more direct techniques to avoid abusive recourse to consumer discharge. Fear of abuse appears to be diminishing with accumulated experience, as indicated by recent liberalizing reforms in Denmark, Slovakia, Poland, Austria, Russia, Croatia, and Romania. At the same time, evidence from countries that have only begun to develop policies on personal insolvency and discharge (Bulgaria, China, and Saudi Arabia) indicate that fear, or at least resistance to discharge relief, clearly persists.

The Use of Non-Court Based Corporate Rescue Does the Australian Voluntary Administration Procedure Provide a Model for China?

In the recent international history of insolvency law reform, the reform of corporate rescue and restructuring has been an on-going project. In China, the enactment of the 2006 Enterprise Bankruptcy Law saw the introduction of a bankruptcy reorganization procedure that incorporates the debtor-in-possession model found in Chapter 11 of the US Bankruptcy Code. However, the Chinese corporate rescue procedure has been significantly underused due in part to various drawbacks associated with this court-based and highly politicized process. This paper explores the possibility of reforming China’s current corporate rescue regime by drawing upon the Australian voluntary administration (VA) procedure. Found in Part 5.3A of the Corporations Act 2001(CTH), this latter procedure was designed to provide a relatively swift, inexpensive and flexible corporate rescue mechanism for companies in financial distress. It comprises a non-court based mechanism under the control of one or more professionally qualified private administrators. It is interesting to note that the UK also moved away from exclusive reliance upon court-based administration procedures following the passage of the Enterprise Act 2002. This moved the UK closer to the Australian practitioner-dominated approach to corporate rescue. This paper argues that the addition of VA-style procedure to China’s current corporate rescue regime may be needed as China develops its market economy based on the rule of law.

The Use of Noncourt-Based Corporate Rescue: Does the Australian Voluntary Administration Procedure Provide a Model for China?

In the recent international history of insolvency law reform, the reform of corporate rescue and restructuring has been an ongoing project. In China, the enactment of the Enterprise Bankruptcy Law 2006 saw the introduction of a bankruptcy reorganisation procedure that incorporates the debtor-in-possession model found in Chapter 11 of the US Bankruptcy Code. However, the Chinese corporate rescue procedure has been significantly underused due in part to various drawbacks associated with this court-based and highly politicalised process. This paper explores the possibility of reforming China's current corporate rescue regime by drawing upon the Australian voluntary administration procedure. Found in Part 5.3A of the Corporations Act 2001 (Cth), this procedure was designed to provide a relatively swift, inexpensive and flexible corporate rescue mechanism for companies in financial distress. It comprises a noncourt based mechanism under the control of one or more professionally qualified private administrators. It is interesting to note that the UK also moved away from exclusive reliance upon court-based administration procedures following the passage of the Enterprise Act 2002. This moved the UK closer to the Australian practitioner-dominated approach to corporate rescue. This paper argues that the addition of a voluntary administration-style procedure to China's current corporate rescue regime may be needed as China develops its market economy based on the rule of law. Copyright © 2017 INSOL International and John Wiley & Sons, Ltd

Varieties of creditor protection: insolvency law reform and credit expansion in developed market economies

We examine the relationship between creditor protection, law reform and credit expansion using longitudinal data for four OECD countries between 1970 and 2005. By decomposing the different elements of creditor protection, we show that civil law countries (France and Germany) have developed a high level of protection for creditors in the form of controls over the management of debtor firms, while common law countries (UK and USA) have arrived at a high degree of protection in relation to secured creditors' contractual rights over firms' assets. Using panel causality tests and dynamic panel data modelling, we show that laws strengthening creditors' control over debtor firms in these four countries had a long-term positive effect on the expansion of private credit, while reforms increasing secured creditors' rights had a negative effect. We explore the implications of our findings for legal origin theory and the varieties of capitalism approach.

The Costs and Benefits of Regulating the Market for Corporate Insolvency Practitioner Remuneration

AbstractThe release by the Australian Treasury on Friday, 7 November 2014 of the Insolvency Law Reform Bill (ILRB) 2014 throws the spotlight once again on corporate insolvency law reform in Australia. Significantly, the ILRB 2014 identifies amongst its purposes two objectives with respect to Corporate Insolvency Practitioner (CIP) remuneration reform. Namely, to promote market competition on price and quality and improve the overall confidence in the professionalism and competence of insolvency practitioners. This paper considers whether the proposed CIP remuneration reforms outlined in the ILRB 2014 will effectively achieve these objectives. Where it is considered that reforms are misdirected, further changes, informed by UK insolvency reform proposals, are considered.

English

English

The Context for Cross‐Border Insolvency Law Reform in Sub‐Saharan Africa

AbstractCross‐border insolvency literature has developed significantly in recent years. However, the scholarship that has evolved lacks an insight from the perspective of Sub‐Saharan Africa (SSA). Existing theories on cross‐border insolvencies, and the global insolvency benchmarks that emerged in the recent years, have almost exclusively been developed from the best practices obtained in advanced economies. Accordingly, the context within which SSA cross‐border insolvency reform may be undertaken must be determined and explored given the pressure towards globalisation and the potential for the pressure to result in unsuitable legislative reform. This article sets out the context for cross‐border insolvency law reform in SSA. It raises issues that are likely to arise during the reform process and challenges that may be faced. Copyright © 2014 INSOL International and John Wiley & Sons, Ltd

Foundations of Forgiveness in Islamic Bankruptcy Law: Sources, Methodology, Diversity

This article provides a detailed examination of the structure, sources, and ultimate content of the Islamic law of distressed debt. With specific illustrations from the Qur'an, sunna, and fiqh (Islamic jurisprudence), it orients non-specialists on the path to understanding where Islamic law comes from, how it is structured, and what its most salient provisions say about the proper treatment of insolvent debtors. Tracing the various divisions within Islam on the proper identification of shari'a, this article reveals a rich tapestry of contrasting views among and within the shi'a and sunni doctrinal schools of thought. Both the original sources and the secondary juristic analyses of these sources struggle with a delicate balance between forcing debtors to pay their debts while enjoining creditors to be patient and forgiving with respect to distressed debtors. It is hoped that this detailed and sensitive discussion will enhance the increasingly frequent insolvency law reform conversations between Westerners and those in Muslim nations by encouraging the former to respectfully engage with classical Islamic sources and methods, as opposed to advancing arguments based merely on Western views of economic expediency, efficiency, and experience.