Insolvency Proceedings Research Articles

The IP Lottery: The Role of Noise in Balancing Creditor and Stakeholder Interests in Insolvency Proceedings

Abstract. Insolvency practitioners (IPs) manage and liquidate bankrupt estates. While their primary responsibility lies in prioritizing the interests of the collective creditors, they must also consider various other (societal) interests in their decision making. The law typically grants IPs discretion in balancing these interests, but this flexibility leads to variability in bankruptcy proceedings, resulting in legal uncertainty and inequality. This paper aims to introduce the reader to the psychological concept of noise (variability in judgments or decisions that ought to be identical) and to highlight the considerable level of variability in IPs’ decisions when balancing interests. More specifically, using examples from empirical studies we conducted in the Netherlands, the paper demonstrates how stakeholders in bankruptcy proceedings are at the mercy of IPs’ subjective judgements and that there is very little uniformity in their judgments. To reduce the level of legal uncertainty and inequality, this paper proposes further clarification on how IPs should navigate and balance interests in insolvency proceedings.

Principle for Effective Insolvence

Insolvency proceedings are complex because they combine 3 components: economic, judicial and social. Consequently, the conduct of these proceedings requires the participation of implementing authorities with a view to achieving the aim laid down by the law, i.e. to cover the debtor's liabilities and to satisfy the creditors as far as possible. Consistency, professionalism and professional ethics of the authorities enforcing this proceeding, together with the good faith of the debtor and the creditors, ensure the principle for effective insolvency.

Cross-Border Insolvency and Sustainable Business Growth: Legal Frameworks, Challenges, and Strategies in a Globalized Economy

In today’s interconnected world economy, businesses operate cross borders to access new thriving markets, resources, and growth opportunities. However, the quest for sustainable business growth often encounters unforeseen challenges, particularly in Cross-Border Insolvency. This research paper observes the intricate relationship between Cross-Border Insolvency and the execution of sustainable business growth within the realm of international legal frameworks, underlying challenges, and the adoption of strategic measures. The main premise of this study is to research how the legal structure governing cross-border insolvency affects the ability of businesses to uphold the sustainability and drive growth in a globalized economy. This research acknowledges that businesses, regardless of size or sector, are susceptible to financial instability, and their ability to navigate cross-border insolvency matters is integral to preserving and advancing their operations on an international scale. A fundamental element of this research includes a comparative analysis of different legal frameworks for cross-border insolvency in different jurisdiction across the world. The study delves into the divergences in domestic insolvency laws, look into the concept of recognition and enforcement of foreign insolvency proceedings, also contemplate the implications of international treaties such as UNICITRAL Model Law On Cross Border Insolvency. Recognizing those issues which are inherent in the global business landscape, this research paper assesses and identifies the multifaceted challenges which are faced by businesses when confronted with cross-border insolvency. Such issues range from domestic complex legal procedures and cultural disparities to challenges related to asset recovery and dispute resolution. The paper also examines the unique challenges that micro, small, and medium-sized enterprises (MSMEs) encounter in this context. To address these issues and foster sustainable business growth, the paper intent to focus on a series of strategic measures and solutions that businesses can employ. This includes exploring the effectiveness of pre-insolvency planning, assessing the role of alternative dispute resolution mechanisms, and discussing the benefits of insolvency reforms that prioritize the rescue and rehabilitation of distressed companies.

Investigating the confidence business leaders have in business rescue

PurposeThe study measures business leaders’ perceptions of the likelihood of recovery, the competency of business rescue practitioners and the level of support they are expected to provide to businesses in rescue. By examining these three facets of confidence, using expectancy theory, the study seeks to reveal the perceptions of directors as decision-makers in commencing proceedings by inferring their level of confidence in the business rescue process to the likelihood of directors initiating business rescue proceedings timeously.Design/methodology/approachAn online survey targeted South African business leaders, especially directors, was developed to recognise the confidence in the business rescue process. The study combined quantitative (Likert scale) and qualitative (open-ended questions) methods. Data were analysed using the expectancy theory, linking behaviour to anticipated outcomes, to derive confidence in the rescue process. Limitations such as the sensitive nature of insolvency and its inherence negative inclinations should be noted.FindingsThe study revealed some complex sentiments surrounding the business rescue proceedings. The responses are indicative of both confidence in and scepticism of the process, offering a nuanced look at South Africa’s insolvency proceedings from outside the confines of the industry itself.Research limitations/implicationsThe limitations of the study are notably reflected in its reliance on qualitative insights, which may inherently skew towards negative perceptions due to the nature of the subject – business rescue proceedings. Moreover, despite the anonymity of the survey, there remains a possibility that respondents, who are directors with fiduciary duties, may not have been completely forthcoming. This reticence could stem from an unconscious bias to present themselves and the decisions they make in a more favourable light, thus potentially downplaying or overlooking their own hesitations or misgivings about the business rescue process. This may lead to an underrepresentation of both the depth of scepticism and the complexity of the challenges faced in initiating business rescue proceedings.Originality/valueThe originality of this paper lies in investigating the confidence business leaders have in the business rescue process in the context of South Africa derived from a survey instrument.

A critical analysis onto the conundrum of valuation of IP assets as part of liquidation process under IBC, 2016

This study critically examines the valuation of Intellectual Property (IP) assets during the liquidation process under the Insolvency and Bankruptcy Code (IBC), 2016, emphasizing its profound impact on creditor recovery and the efficiency of insolvency proceedings. The research employs a rigorous mixed-methods approach, combining qualitative analysis of high-profile case studies with quantitative assessments of valuation methodologies, such as market, income, and cost approaches. The central research issue revolves around the complexities and challenges of accurately valuing IP assets, which are often unique and lack direct market comparables. The study also scrutinizes the regulatory framework and the pivotal role of registered valuers in ensuring transparent and equitable asset valuation. The findings reveal that precise valuation is not merely a procedural requirement but a critical determinant of liquidation outcomes, influencing the overall recovery rate for creditors and the viability of IP-backed financial instruments. The paper argues that the meticulous calculation of discount rates and adherence to standardized valuation practices can significantly enhance the credibility of the insolvency process, attract more substantial investments, and ultimately lead to superior financial recoveries. This research provides vital insights and robust recommendations for policymakers, legal professionals, and financial analysts, advocating for a more refined and transparent approach to IP asset valuation under the IBC, thereby strengthening India's insolvency framework and market integrity.

Verdicts on the optimization of corporate insolvency legal frameworks for sustainable development in Tanzania and Mauritius

Purpose Sustainable development necessitates balancing economic growth, social inclusion and environmental protection to meet present needs without compromising future generations. The 17 United Nations Sustainable Development Goals (SDGs) provide a global framework to address these challenges. This study aims to explore how optimizing corporate insolvency legal frameworks in Tanzania and Mauritius can contribute to sustainable development, focusing specifically on the intersection of insolvency law and sustainability. Design/methodology/approach The study adopts a qualitative research methodology, integrating Creditors’ Bargain Theory and Communitarian Theory to analyze insolvency frameworks. The Creditors’ Bargain Theory emphasizes the importance of creditors’ rights in insolvency proceedings, whereas Communitarian Theory highlights broader societal impacts. The research is based on an extensive literature review of 59 academic sources, legal texts and reports, complemented by primary data collected through surveys involving at least 20 legal experts, insolvency practitioners, academics and researchers from both jurisdictions. Data was analysed to identify key themes, strengths, weaknesses and best practices within the existing legal frameworks of Tanzania and Mauritius. Findings The study identifies significant disparities between the insolvency frameworks in Tanzania and Mauritius. Tanzania’s framework is encumbered by outdated laws and high burdens of proof for insolvency claims, while Mauritius has a more streamlined process but contends with the misuse of statutory demands. Both countries require reforms to address preferential claims and improve regulatory oversight of insolvency practitioners. The study highlights the need to prioritize consumer claims, set minimum thresholds for statutory demands and ensure equitable treatment of creditors. It further emphasizes enhancing regulatory frameworks, particularly in Tanzania, where insolvency practitioners operate without comprehensive guidelines, in contrast to Mauritius’s more robust system. Originality/value This study offers a unique comparative analysis of how insolvency frameworks in Tanzania and Mauritius can be reformed to align with sustainable development objectives. It provides valuable insights into how legal reforms, including the introduction of penalties and enhancement of practitioner qualifications, can contribute to more sustainable economic practices.

417Cross-border Mobility of Insolvent Companies Within the European Union

Abstract Insolvent companies that meet the conditions of Article 54 of the TFEU and have access to the right of establishment provided for by Article 49 of the TFEU can, in principle, move freely within the European area. However, the cross-border mobility of insolvent companies presents a risk of abuse or fraud and may be detrimental to the rights of third parties. Therefore, the law on insolvency proceedings intervenes to provide a framework for this cross-border mobility by combating forum shopping and law shopping, while protecting local interests by means of private international law rules as well as substantive rules.

Trust declarations and creditor protection in insolvency: lessons from Wade & Anor v Singh & Ors

Abstract The High Court case Amanda Wade and Nicholas Nicholson (Joint Liquidators of MSD Cash and Carry Plc (In Liquidation)) v Mohinder Singh, Surjit Singh Deol, Raminder Kaur Deol, the Estate of Bakshish Kaur (Deceased) (‘Wade & Anor v Singh & Ors’) examined the validity of a Declaration of Trust and enforcement of charging orders in a corporate insolvency. Involving a property owned by family members of a liquidated company, the case explored the intersection of trust law, property rights, and creditor protection. The court invalidated the Declaration as an attempt to defraud creditors under the Insolvency Act 1986. This case emphasises the importance of clear intent in trust declarations and reinforces creditor rights protection in insolvency proceedings. The case underscores the need for specialist legal advice in property and trust matters, particularly when creditor claims may arise.

Measuring Going Concern Viability and the Effect of Interim Financing Under the Indian Insolvency and Bankruptcy Code, 2016

Abstract India’s insolvency framework mandates preserving viable firms as going concerns, but a critical gap remains – the lack of a standardised approach to assessing a firm’s viability during bankruptcy proceedings, resulting in inefficient allocation of interim finance to insolvent firms. This study sheds light on this issue by examining the performance of 21 firms during insolvency. We find that the absence of a clear viability assessment has led to suboptimal outcomes: viable firms being underfinanced and unviable firms being overfinanced. This has led to value deterioration, as many viable firms were ultimately pushed into liquidation due to insufficient interim financing. As a remedy, the authors propose a periodic viability assessment framework, for collecting and publishing information about the insolvent firm during insolvency proceedings. This would improve transparency and predictability for viable firms seeking interim finance, empowering lenders and investors to make better-informed decisions. By supporting viable distressed firms, this framework could foster a thriving market for distressed debt in India, rescuing valuable companies from the bankruptcy abyss.

Cramming down cross-border secured debt under the Insolvency Regulation and the Directive on Restructuring and Insolvency: laws in conflict or in development?

Article 8 of the European Insolvency Regulation provides creditors with security rights on assets located in another member state than where insolvency proceedings are opened with the remarkable position that the opening of the insolvency proceedings cannot affect their security right. This has been heavily debated in the past, including whether art. 8 EIR protects against a reduction of the cross border secured claim in foreign insolvency proceedings. This debate is cast in a new light by not only the increased interconnectivity of the European continent since the development of (predecessors of) art. 8 EIR, but also by the introduction of the Directive on Restructuring and Insolvency and the plan-proceedings it has sparked. Whilst art. 8 EIR aims to protect cross border secured creditors against unexpected foreign insolvency proceedings, cross border secured creditors can now no longer legitimately expect that other member states have not implemented the Directive and incorporated in their national law plan proceedings that can bind secured creditors. The Directive not only shapes the legitimate expectations of cross-border secured creditors, it also sets a new standard for restructuring proceedings, including a new standard of creditor protection with the best interest test. This paper argues that in this light art. 8 EIR should be interpreted as to not prevent a cram down of cross-border secured claims that meets the safeguards of the Directive, although amendment of art. 8 EIR to adapt it to the new Directive is to be preferred.

Recognising foreign solvent proceedings under the UNCITRAL Model Law on Cross-Border Insolvency: the Singaporean approach in Ascentra Holdings, Inc v SPGK Pte Ltd [2023] 2 SLR 421

To promote cooperation among stakeholders in different jurisdictions to facilitate coordinated insolvency proceedings, the United Nations Commission on International Trade Law (UNCITRAL) adopted the Model Law on Cross-Border Insolvency (MLCBI) in 1997. The MLCBI harmonises certain procedural aspects of the cross-border insolvency process, though states may choose to make modifications when adopting the MLCBI in their own legal systems. This was completed in Singapore in 2017, and the Singapore Model Law (SML) can now be found in the Third Schedule to the Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed) (IRDA 2018). One topic that has been the subject of much debate internationally is whether foreign solvent proceedings can be recognised under the MLCBI or the corresponding provisions in various jurisdictions: the Nevada Bankruptcy Court first answered this question in the affirmative, but this was explicitly rejected by the High Court of England and Wales (EWHC) in Re Sturgeon Central Asia Balanced Fund Ltd (in liquidation) (No 2) (Re Sturgeon). In Ascentra Holdings, Inc (in official liquidation) v SPGK Pte Ltd (Ascentra), the Singapore Court of Appeal (SGCA) held that foreign proceedings concerning solvent companies may be recognised under the SML. This commentary addresses the salient points of the SGCA's judgment and highlights the positive impact of this gradual harmonisation of the approaches taken in different jurisdictions to the MLCBI. Through a comparative analysis of the conflicting Re Sturgeon decision, three additional justifications based on the preparatory documents pertaining to the MLCBI, relevant authorities in the UK and a purposive reading of the MLCBI are provided for the approach in Ascentra. It is contended in closing that these reasons support the argument for definitively overruling the Re Sturgeon decision in the UK.

The efficiency of bankruptcy proceedings and the severity of insolvency regulations in view of the implementation of the New Opportunity Policy

Abstract The article investigates the relationship between the efficiency of insolvency proceedings, as measured by their duration, and measures the severity of bankruptcy law toward debtors in 27 countries, of which 23 are EU. This objective was achieved using quantitative methods – Pearson’s correlation, pooled panel regression and Granger causality. Research shows no direct correlation between the two variables mentioned above. The increase in sanctions in bankruptcy law contributed to a decrease in the efficiency of insolvency proceedings. In addition, less stringent conditions concerning the time taken to file a bankruptcy petition translated into a shorter duration of insolvency proceedings. Therefore, supporting the New Opportunity Policy, we recommend that regulators focus on softening the legal requirements for filing a bankruptcy petition, for setting a time limit for filing and on reducing the sanctions for honest debtors, including those imposed for failure to file for bankruptcy within the period prescribed by law.

Problematic aspects of covering costs related to insolvency proceedings

The article is dedicated to examining the problematic aspects that arise in practice concerning the formation, execution, and reimbursement of costs associated with insolvency proceedings for small and medium­sized enterprises and developing proposals to address these issues. Special attention is given to the analysis of the current insolvency legislation in Ukraine, identifying its shortcomings in regulating the composition of expenses in bankruptcy cases, the mechanisms for covering these costs, and the determination oftheirfunding sources. The authors argue that the feasibility of applying bankruptcy procedures, an objective assessment of their effectiveness, and the independence of insolvency practitioners largely depend on the provision of adequate financing for the costs associated with insolvency proceedings. The article highlights the specifics of applying bankruptcy procedures in situations where the debtor lacks sufficient assets to cover the expenses associated with the proceedings. The author proposes the introduction of a new simplified liquidation procedure that provides for minimal implementation timelines and reduced costs. Such a procedure has the potential to significantly alleviate the financial burden on debtors and simplify the process for insolvency practitioners. The relevance and necessity of urgently improving the regulatory framework governing the costs associated with insolvency proceedings are substantiated, along with the comprehensive provision of debtors with effective legal instruments to resolve their obligations in a state of insolvency. Based on the conducted research, practical recommendations have been developed for amending the insolvency legislation. These proposalsinclude standardizing thelistof expenses, improving the mechanisms for advancing costs, introducing more efficient methods for covering expenses and ensuring the timely payment of costs associated with insolvency proceedings. Thus, the article aims to contribute to the further improvement of Ukraine’s insolvency legislation, enhancing its effectiveness and ensuring greater legal certainty for all participants in the bankruptcy process.

Tensions between sanctions and insolvency law: Searching for a model solution with a focus on the European Union and Poland

AbstractThis article explores the conflict between insolvency law and sanctions law, particularly in the context of European responses to Russia's invasion of Ukraine. Historically, conflicts between legal systems have shaped laws, and modern insolvency law continues this struggle by determining creditor priorities in cases where debtors cannot fully satisfy them. The article highlights how recent sanctions, which freeze assets to restrict the economic activities of sanctioned individuals and entities, complicate insolvency proceedings. The European Union, along with Poland, has imposed unprecedented sanctions on Russia, including bans on transactions, asset freezes, and trade restrictions. These sanctions, while aimed at political objectives, often push businesses into insolvency by preventing access to resources. Case studies such as GoSport in Poland, Amsterdam Trade Bank in the Netherlands, and Fortenova in Croatia demonstrate the complexities that arise when businesses linked to sanctioned entities become insolvent. Key issues include the legal treatment of frozen assets, creditor satisfaction, and the potential for sanctioned entities to benefit from bankruptcy proceedings. Poland has revised its sanctions law, introducing provisions for the appointment of independent managers to oversee sanctioned companies, ensuring continued operations without benefiting sanctioned owners. However, uncertainty remains over the management and distribution of frozen assets, with no clear framework in place. The article concludes that insolvency and sanctions law, though often in conflict, must be applied flexibly to address individual cases. A balanced approach is needed to protect creditors while adhering to the political and legal objectives of sanctions.

Navigating the evolving seas of cross‐border insolvency: The shift towards COMI and the Model Law approach in Hong Kong; Re Global Brands Group Holding Ltd (In Liquidation) [2022] 3 HKLRD 316 (Coram Harris J) [case comment

AbstractIn cross‐border insolvency cases involving foreign liquidators, Hong Kong courts traditionally adhered to two criteria for recognition and assistance: the collective nature of insolvency proceedings and the commencement of such proceedings in the company's place of incorporation. This approach has evolved following Re Global Brands, marking a shift towards considering the company's COMI as a more practical criterion, and highlighting the impracticalities of using the place of incorporation as the primary criterion. Despite the benefits, the COMI Criterion introduces complexities, such as potential non‐recognition and conflicting rulings between jurisdictions. There are also questions surrounding the differences between the principle of modified universalism under common law and the UNCITRAL Model Law. This article analyses the impacts brought about by the transition to the COMI Criterion, and encourages consideration of the adoption of the Model Law by Hong Kong in the future.

IUS Constituendum Of Cross-Border Insolvency Regulation In Asean (Analysis Of The Uncitral Model Law On Cross-Border Insolvency And The European Union Regulation On Insolvency Proceedings)

Currently, ASEAN has an economic integration program that is stated in the ASEAN Economic Community Blueprint. As is well known, the European Union is the only regional organization that has succeeded in creating economic integration in its region supported by a unified law. One of the legal unification that needs to be initiated by ASEAN in supporting its economic integration is cross-border insolvency regulation. Some international legal instruments that can be a reference for the establishment of the ASEAN Cross-border Insolvency Regulation include the UNCITRAL Model Law on Cross-Border Insolvency and EU Regulation 848/2015 on Insolvency Proceedings. However, the comparison between ASEAN and the EU is not equivalent. ASEAN is a regional organization that is intergovernmental in nature, while the EU is a regional organization that is supranational in nature. Therefore, the comparative approach and statute approach are the right approaches in this article's writing. As for the research method used in this article writing is normative research. The objectives of this article are to describe the legal personality of ASEAN and the European Union in relation to the establishment of cross-border insolvency regulation and provide an overview of the substance of the UNCITRAL Model Law on Cross-Border Insolvency and EU Regulation 848/2015 to provide a reference for ASEAN to from cross-border insolvency regulation.

Insolvency Proceedings in Post-Pandemic Period, Through the Governance Sustainability Prism

Insolvency Proceedings in Post-Pandemic Period, Through the Governance Sustainability Prism

REVITALIZING INDIA'S HOUSING DREAMS: NAVIGATING CHALLENGES BEYOND BAILOUTS THROUGH STRESSED FUNDS

India’s real estate market, particularly the residential sector, has grappled with significant challenges in recent years. Issues such as liquidity crises, the implementation of real estate regulations, the Goods and Services Tax (GST), and demonetization have compounded the sector’s woes, leading to over 1,600 stalled housing projects. These include projects classified as non-performing assets (NPAs) or admitted into insolvency proceedings. To address these concerns, the Indian government established a ₹25,000 crore Stress Fund. This initiative aims to revive 4.58 lakh housing units nationwide through a Special Window System.The Special Window facilitates funding for projects with capital commitments exceeding ₹540 crore and registered under the Real Estate Regulatory Authority (RERA) with a positive net worth. By prioritizing affordable and middle-income housing projects, the fund seeks to rejuvenate the real estate sector while generating employment and alleviating stress across other industries in the Indian economy.However, significant gaps persist. Projects outside RERA’s purview or entangled in legal disputes at higher courts remain excluded. This limitation leaves numerous housing projects ineligible for support, raising concerns about whether the Stress Fund can effectively revive the sector. A critical assessment of this funding scheme is essential to understand its potential, limitations, and impact on stakeholders, including industry players and homebuyers.This study employs a doctrinal approach, emphasizing analytical reasoning to evaluate the Stress Fund’s framework. By exploring its benefits and addressing its shortcomings, the study aims to propose actionable remedies to ensure a comprehensive revival of India’s stalled housing projects.

The New Luxembourg Insolvency and Restructuring Law in Light of the Transposition of the Directive (EU) 2019/1023

The transposition of the Directive (EU) 2019/1023 by the Law of 7 August 2023 has provided an opportunity to update Luxembourg’s insolvency and restructuring law, addressing aspects such as insolvency prevention, debt and business restructuring, the second chance for honest insolvent entrepreneurs, and the effectiveness of insolvency proceedings. New proceedings, new practitioners and new mechanisms have been introduced into Luxembourg law. While the new rules require adaptation and may be subject to discussion on certain points, the transposition of the Directive (EU) 2019/1023 aligns Luxembourg law with European standards in the realm of restructuring and insolvency. Consequently, this move enhances its competitiveness.

Гармонизация процедур реструктуризации в банкротстве: итоги Гаагской конференции по международному частному праву 2024 г.

From 5 to 8 March 2024, a meeting of the Council on General Affairs and Policy of the Hague Conference on Private International Law (HCCH) was held. The meeting was attended by 429 participants accredited by 74 states. The delegation of the Russian Federation included 6 representatives of various federal executive authorities, including the author of this article. One of the pressing issues considered by HCCH was the harmonization of international insolvency law. The main achievement in this direction was the cooperation of the Permanent Bureau of HCCH with Working Group V on Insolvency law of the United Nations Commission On International Trade Law (UNCITRAL) in matters of unification and harmonization of regulation of restructuring procedures, development of documents on issues of applicable legislation in proceedings on cases insolvency, as well as tracking and recovery of assets during insolvency proceedings. This article presents an analysis of the problems in this area that existed before the start of the HCCH’ meeting in 2024, as well as the progress and results of the discussion within HCCH on the unification and harmonization of insolvency restructuring procedures, taking into account its interaction with UNCITRAL Working Group V.