Insolvency Law Research Articles

On the meaning of bankruptcy: ‘Old–new’ lexicon in corporate insolvency law in the Commonwealth Caribbean

Several jurisdictions in the Commonwealth Caribbean have undertaken reform and modernisation of their insolvency legislation. The dominant model for the new enactments has been Canada's federal statute, the Bankruptcy and Insolvency Act, RSC 1985, which has already been transplanted into six jurisdictions of the region. The transplantation has introduced lexicon which, while part of the vocabulary of the old statutes for personal insolvency, has, traditionally, been unfamiliar to the region's corporate insolvency law, hence the phrase, ‘“old–new” lexicon’, in the title. This article examines the meanings of some of this lexicon, particularly ‘bankruptcy’ and cognate terms, including ‘acts of bankruptcy’. The examination extends to the term ‘receiving order’, operationally related to bankruptcy. Legal interpretation of the terms is enriched in the discussion by insights from linguistics. While showing that the importation of these terms into the region's corporate insolvency law is semantically problematic, the article elucidates the signification of the terms. It points out that some of the ‘old–new’ terms may tend to reduce the efficacy in the contemplated lay administration of the statutes. It also warns that the ‘old–new’ lexicon threatens to undermine key goals of the reform exercise, suggesting a need for deeper scrutiny in the transplantation process.

The flip side of the coin: how entrepreneurship-oriented insolvency laws can complicate access to debt financing for growth firms

The flip side of the coin: how entrepreneurship-oriented insolvency laws can complicate access to debt financing for growth firms

The concept of a fresh start in the discharge of debt procedure in European Union insolvency law

A fresh start is the essence of personal insolvency proceedings. In the last few decades, policymakers in the United States of America and European countries have focused on establishing effective and efficient insolvency proceedings which would address the particular needs of insolvent natural persons. Previously, personal insolvency proceedings aimed to address the social and economic problems of insolvent debtors (consumers) which were not able to meet their financial obligations in time. However, the latest developments in this area reveal that specific rules should be established in insolvency law to tackle the insolvency problems of individuals who incur most of their debts from economic activities (entrepreneurs’ insolvency). The adoption of the Directive on Restructuring and Insolvency is the first attempt in European Union law to counter the challenges of the insolvency of entrepreneurs. This article analyses the main elements of a fresh start in European Union insolvency law, how this phenomenon has evolved and whether the European Union insolvency law provides an effective fresh start for insolvent entrepreneurs.

CREDITORS’ SATISFACTION, FAIR DISTRIBUTION, OR AVOIDING THE STRUGGLE FOR SURVIVAL – WHICH PUBLIC INTERESTS IS CORPORATE INSOLVENCY LAW SUPPOSED TO SERVE?

For a long time, insolvency proceedings were understood as a special civil law procedure with the aim of maximizing creditor satisfaction. To the extent that public interests played a role in this, it was a matter of giving preferential treatment to particular groups of creditors. This was expected to contribute to the realization of sociopolitical values. For good reasons, such values are receiving less and less consideration in insolvency law. Instead, it has been recognized that proper structuring of the legal relationship between the debtor company and its creditors is likely to minimize macroeconomic damage in the public interest. This has led to a substantial change in the objectives of insolvency law, which – especially thanks to the Restructuring Directive (2019/1023/EU) – has arrived in all European legal systems. This article traces the paradigm shift and shows, using the example of German and Polish insolvency law, that despite having its foundations in European law, it has not yet been fully internalized in the legal systems of all Member States.

Creditor Priority in European Bank Insolvency Law: Financial Stability and the Hierarchy of Claims by Sjur Swensen Ellingsæter [Hart Publishing, London, 2023, 280pp, ISBN: 9781509953653, £85.00 (h/bk)

Creditor Priority in European Bank Insolvency Law: Financial Stability and the Hierarchy of Claims by Sjur Swensen Ellingsæter [Hart Publishing, London, 2023, 280pp, ISBN: 9781509953653, £85.00 (h/bk)

The future of corporate insolvency law: A review of technology and AI‐powered changes

AbstractThe conversation about how artificial intelligence (AI) might affect various areas of law (and other areas of life) has, in recent months, centred around ChatGPT which is just one application of AI. This article takes a broader view and assesses how AI, and technology more broadly, has begun to transform, and will continue to transform corporate insolvency law. While the pandemic has increased the adoption of technology in corporate insolvency processes, there is scope for further transformation. This article aims to survey the technological changes to corporate insolvency law and practice thus far and assess, based on current advances in technology, the potential for further transformation. It advances the argument that technology can improve efficiencies both prior to and during formal insolvency resolution processes. It therefore would be in the interests of every country to facilitate the adoption of technology at various points in the insolvency process. The article takes a cross‐jurisdictional approach to identify tech advances in insolvency law across different countries based on which best practices and guidelines can be outlined.

Pre‐insolvency frameworks: Developments in the European Union

AbstractThis article deals with the European Union's efforts to harmonise the insolvency laws of its Member States. In particular, it explains the Directive on restructuring and insolvency, its key features and disparities and its transformation in national laws. Further, the European Commission's proposal for a Directive on harmonising certain aspects of insolvency law is introduced.

Foreign Exchange Committee Master Agreements as International Contractual Standards for Foreign Exchange Derivatives

INTRODUCTION. The ISDA Master Agreement is possibly the most authoritative cross-border contractual standard in the world of financial markets. It also serves as an example for the local transactional documentation drafters in various countries to regulate the conclusion and performance of over-the-counter derivatives transactions by means of bilateral contracts. However, international master agreements for derivatives and other financial products are not limited to the templates produced by International Swaps and Derivatives Association (ISDA). Foreign Exchange Committee (FXC) suggests a remarkable alternative to the documents maintained by this powerful industry club as far as transactions with foreign currency are concerned.MATERIALS AND METHODS. International Foreign Exchange and Currency Option Master Agreement (IFXCO) and other FXC master agreements served as primary sources of the present article. Its methodological base is represented by general scientific methods (analysis, synthesis, induction, deduction) as well as specific legal research methods. In particular, formal legal method was employed for the literal interpretation of the provisions of FXC standard documentation, historical method was invoked to describe the evolution of standard FXC templates, while comparative legal method was used to undertake a comparative analysis of insolvency laws where appropriate.RESEARCH RESULTS. The article gives a general overview of master agreements in financial markets to put FXC documentation into a broader context of standard contracts publication in financial markets. The analysis of FXC master agreements is carried out through conclusion and performance of FX transactions as well as risk mitigation mechanisms analysis such as close-out netting and collateral. Moreover, the article covers governing law and enforceability issues as well as puts FXC documentation into Russian legal context. Although Russian court, with a high degree of probability, will recognize the choice of governing law made by the parties to the relevant master agreement published by FXC, the enforceability of collateral and close-out netting provisions amidst the bankruptcy of a Russian entity is not secured due to non-recognition of FXC documentation by the Russian authorities.DISCUSSION AND CONCLUSIONS. Author comes to conclusion that despite FXC master agreements are not able to compete with ISDA documentation. However, they are popular with certain financial institutions active in foreign exchange markets. To facilitate the development of Russian financial market the list of recognized master agreements should be broadened by addition of documentation produced by FXC. Arguably, it is necessary to amend these provisions and make them compliant with UNIDROIT as well for the purposes of transactions with banks from the countries considered “friendly” to Russia.

Pre-Pack Proceeding - A Hybrid and Derogatory Safeguard Tool. Member States’ Future Obligation of Integrating a New Mechanism in Their National Insolvency Law

Pre-Pack Proceeding - A Hybrid and Derogatory Safeguard Tool. Member States’ Future Obligation of Integrating a New Mechanism in Their National Insolvency Law

Does the treatment of arrear maintenance claims of children under the Insolvency Act 24 of 1936 constitute a violation of their constitutionally protected rights to social welfare and human dignity? An exposition

The time and space for the reformation of the Insolvency Act 24 of 1936 has presented itself through the introduction of a constitutional order in 1996. However, the legislature has thus far proven to fail in its responsibility to align consumer insolvency legislation with the values and rights that are contained in the Constitution of the Republic of South Africa, 1996. The Constitution appreciates the vulnerability of children and thus affords special protection to the rights of children, including their rights to social welfare. It further guarantees children that their best interest reign supreme in every matter concerning them. The Constitution also guarantees children the right to human dignity, which right is also a value underlying South African constitutional jurisprudence. These constitutionally guaranteed rights of children to social welfare and human dignity do not enjoy protection under South African consumer insolvency law, particularly in the treatment of arrear maintenance claims of children against the estate of an insolvent debtor. Children's maintenance arrear claims do not enjoy any preference as they are treated as concurrent claims. This also burdens them with the liability to contribute towards the costs of sequestration if they have successfully proven claims and where there are insufficient funds in the free residue account. Children's maintenance arrear debts are not exempt from the discharge of pre-sequestration debt under South African consumer insolvency jurisprudence. The overall approach to the treatment of children's arrear maintenance claims compromises the rights of children to social welfare and human dignity as guaranteed in the Constitution.

Trade credit supply and financial distress outcomes: evidence from Australian voluntary administrations

PurposeThe objective of this study is to investigate the relationship between trade credit supply and financial distress outcomes, considering the role that trade credit plays as a substantial source of liquidity for distressed companies. Specifically, it examines whether there is an association between trade credit supply and the outcomes experienced by companies that undergo the voluntary administration (VA) insolvency procedure under Australian corporate law.Design/methodology/approachThe study examines a sample of companies that were listed on the Australian Securities Exchange and entered VA between 2002 and 2019. Ordered logistic regression is used to determine the relation between trade credit and VA outcomes. The VA outcomes considered are as follows: (1) company liquidation, (2) orderly dissolution through an agreement with creditors, or (3) an agreement with creditors for reorganization of all or part of the company's business.FindingsThe findings show that trade creditors' willingness to supply credit is influenced by their rational expectations about the future prospects of financially distressed customers. Higher levels of trade credit and an increase in trade credit supply prior to VA are associated with a greater probability of achieving a reorganization versus a liquidation or dissolution outcome.Originality/valueThere is no apparent prior study investigating the connection between trade credit supply and outcomes for distressed companies entering insolvency administration. Therefore, this study provides novel evidence on the role of trade credit in the context of financial distress. Understanding the relationship between trade credit supply and outcomes is particularly significant considering that many jurisdictions offer distressed companies the opportunity to pursue reorganization under their insolvency laws. Examining financial distress and trade credit in the Australian creditor-friendly context expands on existing research. Prior research has predominantly relied on data from the United States, which has debtor-friendly bankruptcy law. Consequently, these studies may lack generalizability to jurisdictions with creditor-friendly law such as Australia.

BUSINESS LEGAL POLICY WITHIN THE SCOPE OFREHABILITATIONREGIMEOFADEBTOR

The presence of the business and a proper business environment is essenƟ al for the mulƟ faceted development of our country. Therefore, its preservaƟ on has the same importance as well, that is provided by the insolvency law through the rehabilitaƟ on regime. The arƟ cle discusses the importance of the rehabilitaƟ on regime for a business enƟ ty.The arƟ cle hereof provides the acƟ ons taken by various authoriƟ es through adopƟ ng laws, introducing inter-naƟ onal standards, etc. For example, on the Ministry of JusƟ ce of Georgia iniƟ aƟ ve, the Parliament of Georgia adopted the Law “On RehabilitaƟ on and CollecƟ ve SaƟ sfacƟ on of Creditors’s Claims” in 2020. The work also discusses the judiciary and its role in saving the business based on a specifi c example. The work also reviews the place of Georgia in various raƟ ngs, such as those of “Doing Business” and “The Heritage Founda-Ɵ on”. Considering their importance and infl uence, the above-menƟ oned raƟ ngs and the place held by Georgia are a guide for foreign investors.The place of the judiciary in the raƟ ng, which has experienced stagnaƟ on, should also be noted. This, of course, has a negaƟ ve impact on both local and internaƟ onal levels for those interested in doing business in Georgia. De-spite the presence of an appropriate legal framework within the scope of the issue under consideraƟ on, however, the numbers that are read in the raƟ ngs do not give us the opportunity to state that there is a sound environ-ment for doing business in Georgia. For this, it is obvious that only the insolvency law's presence is insuffi cient.

MORATORIUM MEASURE IN PROCEEDING OF THE REHABILITATION REGIME

The debtor, who is willing to implement the rehabilitation regime, needs proper support in order to maintain and protect insolvency, increase the liquidity of the entity, etc. The moratorium measure ensures all of the aforementioned in insolvency law, in particular in the rehabilitation regime. The use of the moratorium measure in the rehabilitation regime should not be understood solely in favour of the debtor. It is a means of protecting the interests of creditors along with the interests of the debtor. The law distinguishes between mandatory and additional moratorium measures. As soon as the court issues a ruling on opening the rehabilitation regime, certain measures of the moratorium are automatically put into effect, and in certain cases, based on the court’s decision, it is possible to apply additional measures of the moratorium. Consequently, the moratorium measure requires the court’s involvement and caution. When applying the moratorium, the court must act in accordance with the principles of justice and proportionality. The use of the moratorium measure in the rehabilitation regime can be considered an important means of implementation of one of the important principles of the law, “ – Maintaining and increasing the insolvency and business value as much as possible”.

The extraordinary in the ordinary: the devil is in the (sometimes unexpected) details of section 34 of the Insolvency Act 24 of 1936 and the actio Pauliana

A recent case offers an opportunity to consider two types of impeachable dispositions in insolvency law. One is the transfer of a trader's business under section 34(1) of the Insolvency Act, and the other is the common-law actio Pauliana from which the entire law of impeachable dispositions derives. In the first place, the nature of the application is characterised as an attempt to reverse the transfer of the business and assets. A common feature of section 34(1) and the actio Pauliana is spotted: they straddle sequestration or winding-up. Compliance with sections 34(1) and (2) of the Insolvency Act is discussed, and the trader's celebration of doing so is then ruined by the pervasive menace of the actio Pauliana, the defence of necessity supplying a sword to cut the Gordian knot. The central insight of the judgment about section 34(1) - the relative meaning of the word "void" - is shown to be well-articulated by a widely followed juristic insight into administrative validity. Some of the finer details of the ambit of the word "void" are then teased out. The uneasy relationship between section 34(1) and sections 26, 29, 30, and 31 of the Insolvency Act and the actio Pauliana is explored, and an answer to a dilemma over the application of section 34(1) ventured. As for applying the requirements of the actio Pauliana to the facts, a comprehensive, nuanced approach considering both the two relevant possibilities is proposed, rather than the single choice plumped for in the judgment apparently because it is the more usual one. The closing remarks underline the wisdom of thoroughly planning, discussing, and creating a Plan B for the client in the pleadings and executing the procedural requirements and administration.

The Position of Creditors of Individual Collateral Holders In Insolvency Law

This researcher aims to find out about the rights of creditors of individual collateral holders in the norms of Law No. 37 of 2004 on Insolvency and Delay of Debt Payment Obligations. The researcher's method uses norrmative law with a statutory problem approach and a conceptual approach. Broadly speaking, the position of individual guarantees in the norms of the Bankruptcy Law if the insurer and debtor are declared bankrupt simultaneously, then it is a concurrent creditor and all the assets of the insurer as bankruptcy property. In the process of managing and releasing bankruptcy property, that the position of concurrent creditors in the process of division of bankruptcy property is at the bottom, because in principle it can but if the creditors are many while the property is few, then potentially do not get the share or even if it can be very small percentage. So that the position of creditors of individual collateral holders who are concurrent creditors is very weak in the process and distribution of bankruptcy property. When the debtor is declared bankrupt while the insurer is not declared bankrupt, then all the assets of the insurer do not include bankruptcy property. So creditors have the right to make a default lawsuit in accordance with Article 1243 kuhper to the insurer, if the process and enactment of the debtor's bankruptcy property is insufficient creditor debt. The mechanism of fulfilling achievements to individual guarantee holder creditors, namely creditors can execute the collateral object directly without having to apply for bail and execution to the court, because after the bail object is registered with the guarantee institution, the certificate will be issued as a guarantee that has executory power.

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.

The French approach to entrepreneurial failure: A profound paradigm shift

AbstractFrom the long‐standing disapproval attached to the "bankruptcy" of the entrepreneur, through the contested recognition of the right not to pay his debts, the French law of insolvency has evolved to gradually take into account the fate of the man in entrepreneurial failure. Thus, the objective of the rebound of the entrepreneur is part of the reforms of the law of companies in difficulty for several years: introduction of professional recovery leading to the cancellation of debts, acceleration of the judicial liquidation procedure, limitation of the scope of the guarantees offered to creditors and reduction of the weight of sanctions. Beyond the measures, the evolution of the law of companies in difficulty reflects a real mutation in the French perception of entrepreneurial failure. A paradigm shift is taking place where the culture of failure gradually gives way to a culture of rebound, so that the entrepreneur can be entitled to a "second chance". The article focuses on the legal mechanisms of the rebound of the individual entrepreneur after a judicial liquidation under French law. The objective is to demonstrate that a paradigm shift is taking place where the culture of failure is gradually giving way to a culture of rebound. If the change has appeared for 30 years, it appears more blatantly for 3 years, whether in European or French law. However, many economic stigmas persist, such as indicators in the banking file of companies or data on judicial liquidation that remain publicly available. In order to promote the rebound of the entrepreneur, we propose in particular the establishment of a right to be forgotten.

Cross‐border insolvency law in India: Are the principles of comity of courts and inherent common law jurisdiction relevant?

AbstractDeliberations are in the final stages for enacting a cross‐border insolvency law in India based on the UNCITRAL Model Law on Cross Border Insolvency 1997 (‘Model Law’). The cross‐border insolvency regime in India will provide an avenue for recognising foreign insolvency proceedings in India. Although it is a matter of time before India adopts the Model Law, it is important to examine whether there remains an independent basis in addition to the Model Law for recognising and providing assistance to cross‐border insolvency proceedings in India. This is crucial on account of the following reasons: first, the Model Law does not provide that it is the exclusive pathway for foreign creditors to seek remedies under domestic law. The Model Law, as reflected in Article 7, was intended by its drafters to be an additional gateway to those provided under local laws. The proposed Indian law in Article 5 of Draft Part Z of the Insolvency and Bankruptcy Code 2016 also does not depart expressly from this principle. Second, there may be instances where neither the ‘Centre of Main Interests’ nor an establishment of a corporate debtor is situated in India; therefore, assistance and cooperation in respect of such cross‐border insolvency proceeding can only be based on the inherent common law jurisdiction, if available. Third, the cross‐border insolvency framework in India will be premised on the requirement for reciprocity and, therefore, countries that do not meet the reciprocity requirement may find it beneficial if such an independent basis for recognition exists in India. This article argues that foreign representatives should be encouraged to explore the possibility of seeking assistance from the commercial courts in India under the common law principles governing cross‐border insolvency and that the courts in India should be open to this possibility.

Governmental responses mitigating the impact of COVID‐19 on small and medium‐sized enterprises and the case for insolvency law reforms in Hong Kong

AbstractThe COVID‐19 crisis has triggered unprecedented governmental responses around the world to mitigate the effects of the pandemic, with particular attention being given to small and medium‐sized enterprises (SMEs). Governments around the world have implemented economic measures in the form of direct subsidies or government‐guaranteed loans, and legislated to provide mandatory relief from contractual obligations. In addition, increasing recognition of the limitations of insolvency regime in addressing the crisis for SMEs prompted many jurisdictions to change their laws. However, consistent with its free market principles, Hong Kong has only adopted economic measures and has provided limited contractual relief in favour of SME tenants. There is no SME‐specific insolvency law nor is the Hong Kong government currently considering any such law reform. This article reviews the need for a temporary insolvency regime to cater to distressed but economically viable SMEs restructure their debts. Drawing on a set of interviews with Hong Kong SME owners, this author finds that they are often unaware of how insolvency law operates, their unsecured creditors are apathetic, and bankruptcy stigmatism is high. Based on a review of the frameworks in the other advanced common law jurisdictions such as the United States, Australia and Singapore, a recommendation for a simplified restructuring and liquidation framework is developed. The process is designed to be simplified and expedited and it incentivises early negotiations with creditors.

Unlocking global opportunities: Exploring bilingual teaching in Spanish business law

This paper explores the complexities of bilingual teaching in Spanish business law, highlighting both opportunities and challenges. Teaching in English offers global recognition and collaboration, especially in areas like international trade. However, nuances in Spanish commercial law and subjects rooted in national legal traditions, like insolvency law, pose hurdles. Anisomorphism between legal systems complicates direct translations, emphasizing the need for a strategic approach. Despite harmonization through directives, elements shaped by national legislation persist. Scarcity of English teaching materials necessitates ad hoc preparation, impacting educators and student independence. A judicious approach to bilingual teaching is crucial, balancing global benefits with linguistic intricacies and resource challenges.