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38626 results in Cambridge Textbooks

Page 1272 of 1932

  • 18 - Cross-Border Insolvency

  • from PART V - The Impact of Corporate Insolvency
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 669-687

  • Summary

    Many modern corporate collapses give rise to private international law issues. This is a natural consequence of the processes of globalisation and the rise of transnational capital markets. Indeed, as the modern corporate enterprise exploits the group structure to an increasing extent, it will often be the case that some of the members of the group will be incorporated in different countries, and many ‘group assets’ will be located in a number of legal jurisdictions. Creditors of a single debtor will be spread across a range of different legal jurisdictions. How does a modern system of corporate insolvency law seek to cope with this reality?

    English law has a long record of dealing with this problem, but in a typically ad hoc fashion. Globalisation was never only a twentieth-century phenomenon for businesses operating in the British Empire. That said, this challenge of cross-border insolvency is an increasingly complex topic and requires a full monograph to do itself justice. Fortunately, such dedicated texts exist. The purpose of this chapter is to apply the framework of analysis used throughout this book in looking at the increasingly complex issues posed by cross-border insolvencies. This provides a basis for arguing that the processes of cross-border insolvency law can be enhanced by the promotion of the central aspects of a good insolvency process that are the focus of this volume.

    Cross-Border Insolvency: Current Mechanisms Operating in English Law

    Common Law

    The common law has always had an eye towards resolving the problems of crossborder insolvency. The early authorities deal with cases of personal insolvency, but as the limited liability company rose to prominence from the mid-nineteenth century onwards, it became necessary to address the peculiar issues generated by it. There has never been a problem in allowing foreign creditors to prove for the debts due to them in an English liquidation; though this rule does have qualifications.

  • 7 - Informal Rescue

  • from PART III - The Quest for Turnaround
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 244-271

  • Summary

    For most troubled companies, entering into formal insolvency procedures is a course of last resort only to be pursued when informal strategies have been exhausted. Informal procedures, as noted in chapter 6, will often prove more attractive than formal steps and stakeholders will hope that informality may avoid the negative consequences that are often the result of commencing an Insolvency Act process.1 Those consequences may include: the precipitation of contractual breaches across financing arrangements; liquidations of collateral;2 rating agency devaluations; shocks to market confidence; reductions in employee morale; and reputational harms to brands and directors as individuals. Informal processes are likely to offer more flexibility than statutory arrangements and they will be more amenable to the early and proactive involvement of major creditors. They also offer a less confrontational forum for ‘marketplace’ negotiations than many a formal procedure.

    It is understandable, accordingly, that informal strategies of various forms are of increasing importance to companies and their advisers. Different modes of informal action are reviewed in this chapter but, before looking at particular approaches, it is worth considering the different parties that may be interested in an informal rescue and the stages of events that commonly lead up to the selection of an informal rescue strategy.

    Who Rescues?

    When a company encounters problems it has long been the paradigm that informal rescue processes are started when its major creditor, the bank, becomes concerned and starts to take action – either by making enquiries of the directors or by taking a more hands-on approach to overseeing managerial performance. It was noted above, indeed, that the banks have recently taken the ‘rescue culture’ to heart and many of them have established teams of specialists that are dedicated to the provision of turnaround services to debtor companies.4 As discussed in chapter 3, however, the last decade has seen radical changes in the credit market and the arrival of new actors with fresh interests in troubled companies.

  • 1 - The Roots of Corporate Insolvency Law

  • from PART I - Agendas and Objectives
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 9-25

  • Summary

    In a society that facilitates the use of credit by companies there is a degree of risk that those who are owed money by a firm will suffer because the firm has become unable to pay its debts on the due date. If a number of creditors were owed money and all pursued the rights and remedies available to them (for example, contractual rights; rights to enforce security interests; rights to set off the debt against other obligations; proceedings for delivery, foreclosure or sale) a chaotic race to protect interests would take place and this might produce inefficiencies and unfairness. Huge costs would be incurred in pursuing individual creditors’ claims competitively and (since in an insolvency there are insufficient assets to go round) those creditors who enforced their claim with most vigour and expertise would be paid but naïve latecomers would not.

    A main aim of insolvency law is to replace this free-for-all with a legal regime in which creditors’ rights and remedies are suspended and a process established for the orderly collection and realisation of the debtors’ assets and the fair distribution of these according to creditors’ claims. Part of the drama of insolvency law flows, accordingly, from its potentially having to unpack and reassemble what were seemingly concrete and clear legal rights.

    Corporate insolvency law, with which this book is concerned, is now a quite separate body of law from personal bankruptcy law although these have shared historical roots. Those roots should be noted, since the shape of modern corporate insolvency law is as much a product of past history and accidents of development as of design.

    Development and Structure

    The earliest insolvency laws in England and Wales were concerned with individual insolvency (bankruptcy) and date back to medieval times. Early common law offered no collective procedure for administering an insolvent's estate but a creditor could seize either the body of a debtor or his effects – but not both. Creditors, moreover, had to act individually, there being no machinery for sharing expenses. When the person of the debtor was seized, detention in person at the creditor's pleasure was provided for. Insolvency was thus seen as an offence little less criminal than a felony.

  • 17 - Employees in Distress

  • from PART V - The Impact of Corporate Insolvency
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 645-668

  • Summary

    The insolvency of a company may prove traumatic for employees, especially those who have invested years of effort and skill in the enterprise. A range of outcomes for employees may be triggered by insolvency, and the law, in some respects, seeks to minimise the negative consequences of insolvency for employees. Insolvency law, however, has other interests to look to, notably those of creditors and possibly those of shareholders and the state. Issues of fairness come to the fore, as do considerations of rescue and the design of rules that allow efficient transfers of enterprises.

    This chapter begins by outlining how the law treats employees in an insolvency. It then moves to a now familiar set of issues by asking four questions. Do insolvency laws relating to employees lead to efficient rescue processes and corporate operations? Do these laws make best use of employee expertise? Are employees given an appropriate voice within the schemes of accountability that operate in insolvency? Does the law allocate rights to employees that are fair? A further, more general issue is then discussed: whether insolvency law's conception of the employee evidences a coherent and appropriate philosophy.

    A preliminary issue, however, has to be dealt with: the scope of the term ‘employee’ for the purpose of insolvency protections. A starting point here is that, in order to claim priority as an employee, a person must be employed under a contract of service with the company rather than, say, operate as an independent contractor. The courts, moreover, will consider a number of factors in assessing whether a person is an employee or not, factors that include: whether the person is under the control of another or an integral part of another organisation; whether they are in business on their own account; and the economic reality of the relationship with the alleged employer. As for the status of a director, it appears that a non-executive director who acts on his own account cannot be a company employee but that an executive director may be.

  • 10 - Pre-Packaged Administrations

  • from PART III - The Quest for Turnaround
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 371-408

  • Summary

    In chapter 6 it was argued that, over recent years, responses to corporate troubles have increasingly tended to be made before any final crisis precipitates formal action. One form of anticipatory action is the pre-packaged administration. This is a device that has been encountered on the UK insolvency scene since the mid-1980s, but which has grown in use more recently. It is a device that some commentators herald as a freshly effective mechanism for furthering rescue objectives and others see as a means by which powerful players can bypass carefully constructed statutory protections. In many senses, it represents the public face of ‘rescue’ and has therefore attracted considerable attention in the media and political arenas. It has also attracted the interest of distressed firms across the EU which have been happy to relocate to the UK jurisdiction to exploit its potential as a restructuring tool.

    The ‘pre-pack’ is a process in which a troubled company and its creditors conclude an agreement in advance of statutory administration procedures. This has the effect of establishing a deal in advance of the appointment of an administrator and it allows statutory procedures to be implemented at maximum speed. The danger most commonly pointed to is that such speedy implementations of faits accomplis will tend to ride roughshod over the procedural and substantive interests of less powerful creditors.

    This chapter looks at the development of the pre-pack, identifies the issues raised by this device, and considers how insolvency law might respond to the burgeoning popularity of such agreements. A particular concern will be whether the advent of the pre-pack calls for a rethinking of current approaches to the protection of those interests that are affected by corporate troubles. Frisby has argued that the pre-pack represents one area of insolvency practice where established principles and commercial practice do not converge, thereby creating a challenge for policy-makers and the legal system.

  • 5 - Insolvency Practitioners and Turnaround Professionals

  • from PART II - The Context of Corporate Insolvency Law: Financial and Institutional
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 146-194

  • Summary

    Corporate insolvency processes are not mere bodies of rules: they are elaborate procedures in which legal and administrative, formal and informal rules, policies and practices are put into effect by different actors. Those actors, in turn, have cultural, institutional, disciplinary and professional backgrounds which influence their work. They also operate under the influence of a variety of economic, career and other incentives and are subject to a host of constraints ranging from legal duties and professional obligations to client and own-firm expectations. The Cork Report, in an oft-quoted statement, urged that the success of any insolvency system is very largely dependent upon those who administer it, and socio-legal scholars have emphasised how insolvency law is not applied in a mechanical way but is manoeuvred around or manipulated by means of administrative structures ‘designed and imposed by dominant actors’.

    This chapter looks at how insolvency law and turnaround processes are made operational by those actors who dominate such procedures: the insolvency practitioners (IPs) and turnaround professionals (TPs). In accordance with the discussion in chapter 2, it will be asked whether present practitioner and professional regimes can be supported as efficient, expert, fair and accountable. This will demand examinations of both the ways that these actors carry out their tasks and the ways that they are regulated.

    Insolvency Practitioners

    In the post-millennium era there has been a shift in the role of the IP in relation to troubled companies. This can be described as a move in direction from ‘undertaker to renovator’. Before the Enterprise Act 2002 and the rise of the ‘rescue culture’, the IP's contribution was focused on overseeing the orderly distribution of a company's assets to creditors. The modern role demands that the IP spend more time acting as restructuring advisor and manager. Changes in the loan market have further encouraged such a shift in roles. Corporate credit is now obtained routinely from a variety of sources rather than a ‘single bank relationship’, and actors such as the buyers of secondary debt often look to IPs, not to enforce debts formally, but to advise and assist in structuring deals.

  • 16 - Directors in Troubled Times

  • from PART V - The Impact of Corporate Insolvency
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 579-644

  • Summary

    The rules and processes that make up insolvency law operate as a set of incentives and constraints that influence how company directors behave at times of both good and bad corporate fortune. This chapter considers how those incentives and constraints operate and examines the assumptions and philosophies that underpin the role of the company director in insolvency law. The analysis offered here continues the approach set out in chapter 2 and asks whether current insolvency law deals with directors in a manner that renders directors appropriately accountable, makes the best use of directorial expertise, fosters efficiently produced outcomes and is consistent with the fair treatment of directors and parties affected by directorial behaviour. For the purposes of clarity of exposition, the issue of accountability will be considered first, since this involves a mapping out of the broad array of influences and constraints that insolvency law applies to directors – a mapping exercise that should provide a useful background to the discussions of expertise, efficiency and fairness that follow. As a preliminary matter, it is necessary to explore the meaning of ‘director’. In English law, whether a person is a director or not depends upon function and not formal designation. A de jure director is a properly appointed director. A de facto director performs the functional role of director, but without having being formally appointed as such. A shadow director is a person who exercises real influence over a majority of board members without any appointment to the board. The issue of who might be regarded as a de facto director was reviewed in HMRC v. Holland (Re Paycheck Services Ltd), when the Supreme Court emphasised that a director of Company A, which itself is a corporate director of Company B, does not automatically become a de facto director of Company B. For many of the matters discussed below, it matters little which category of director a particular individual falls into. Increasingly, liability is common. This trend is confirmed by section 89 of the Small Business, Enterprise and Employment Act 2015.

  • 4 - Corporate Failure

  • from PART II - The Context of Corporate Insolvency Law: Financial and Institutional
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 117-145

  • Summary

    This chapter looks at what constitutes corporate failure, who decides that a company has failed and why some companies fail. From the insolvency lawyer's point of view it is important to understand the nature and causes of corporate decline so that the potential of insolvency law to prevent or process failure can be assessed and so that insolvency law can be shaped in a way that, so far as possible, does not contribute to undesirable failures or prove deficient (substantively or procedurally) in processing failed companies.

    The purpose of insolvency law is not, however, to save all companies from failure. The economy is made up of a vast number of firms, each engaged in marketing and product innovations that are designed to improve competitive positions and each being challenged in the market by other firms. Business life involves taking risks and dealing with crises, and the price of progress is that only those able to compete successfully for custom will survive. An efficient, competitive marketplace will thus drive some companies to the wall because those companies should not be in business: they may be operated in a lazy, uncompetitive manner, their products may no longer be wanted by consumers and managerial weaknesses may be placing their creditors’ interests at unacceptable risk. The role of insolvency law in such cases is not to take the place of the market's selective functions but to give troubled companies the opportunity to turn their affairs around where it is probable that this will produce overall benefits or, where this is not probable, to end the life of the company efficiently, expertly, accountably and fairly.

    It can also be argued, however, that insolvency laws and processes should be able to look beyond the immediate position of the company and should be sufficiently accessible to democratic influence to allow consideration of factors beyond the narrow confines of the firm or the strictly economic. Corporate failures may lead to the breaking up of teams with experience and expertise; to wasted resources and to runon effects such as the unemployment of staff; harm to customers and suppliers; general impoverishment of communities and losses of confidence in commercial, financial, banking and political systems.

  • 3 - Insolvency and Corporate Borrowing

  • from PART II - The Context of Corporate Insolvency Law: Financial and Institutional
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 55-116

  • Summary

    The issues attending corporate insolvency law are closely linked to those surrounding corporate borrowing. It is the creation of credit that gives rise to the debtor–creditor relationship and makes insolvency possible in the first place. Credit can be obtained by companies in a variety of ways, as we will see in this chapter, and the various modes of obtaining debt bring with them different arrangements for dealing with repayments. These arrangements will be relevant when dealing with companies that can no longer repay all their creditors.

    To ask whether the legal framework of corporate insolvency law is acceptable demands, accordingly, some examination of the arrangements that the law recognises for obtaining credit in order to raise corporate capital. If corporations or creditors in an insolvency face problems that arise from the multiplicity and complexity of arrangements for obtaining credit and the ensuing difficulty of resolving the respective claims of different types of creditor, the best way to reform insolvency arrangements might well be to rationalise the legal methods available for raising capital and obtaining credit rather than to tinker with the insolvency rules that apply to the various credit devices.

    Insolvency arrangements can be assessed with reference to the factors outlined in chapter 2 but the link with credit should always be borne in mind and companies should be seen in both their healthy and their troubled contexts. It would be undesirable, for instance, to reform and improve insolvency arrangements if the result was to prejudice mechanisms for providing healthy companies with the credit arrangements that they need for effective action in the marketplace. The arrangements that best meet the needs of healthy, trading companies, it should be recognised, are not those that necessarily produce the smoothest-operating insolvency regimes and, in designing credit arrangements (with their attendant insolvency implications), the objective should be to maximise the sum of benefits to those involved with both healthy and troubled companies. (Here ‘benefits’ refers to procedural and democratic as well as financial advantages).

  • 2 - Aims, Objectives and Benchmarks

  • from PART I - Agendas and Objectives
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 26-52

  • Summary

    Openness concerning the aims and objectives of corporate insolvency law is necessary if evaluations of proposals, or existing regimes, are to be made. Without such transparency it is possible only to describe legal states of affairs or to make prescriptions on the basis of unstated premises. As will be argued in this chapter, however, it may not be possible to set down in convincing fashion a single rationale or end for corporate insolvency law. A number of objectives can be identified and these may have to be traded off against each other. It is, nevertheless, feasible to view legal developments with these objectives in mind and to argue about trade-offs once the natures of these objectives have been stipulated.

    This chapter will suggest an approach that allows and explains such trade-offs but it begins by reviewing a number of competing visions of the insolvency process that are to be found in the legal literature. A starting point in looking for the objectives of modern English corporate insolvency law is the statement of aims contained in the Cork Committee Report of 1982.

    Cork on Principles

    The Cork Committee produced a set of ‘aims of a good modern insolvency law’. It is necessary, however, to draw from a number of areas of the Cork Report in order to produce a combined statement of objectives relevant to corporate insolvency. Drawing thus, and paraphrasing, produces the following exposition of aims:

  • (a) to underpin the credit system and cope with its casualties;

  • (b) to diagnose and treat an imminent insolvency at an early, rather than a late, stage;

  • (c) to prevent conflicts between individual creditors;

  • (d) to realise the assets of the insolvent which should properly be taken to satisfy debts with the minimum of delay and expense;

  • (e) to distribute the proceeds of realisations amongst creditors fairly and equitably, returning any surplus to the debtor;4

  • (f) to ensure that the processes of realisation and distribution are administered honestly and competently;

  • 12 - Rethinking Rescue

  • from PART III - The Quest for Turnaround
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 442-450

  • Summary

    These are interesting times for corporate rescue. On the one hand, a new emphasis on rescue has developed over the last decade or so and turnaround has emerged as a main priority in dealing with troubled companies. The ‘rescue culture’ has been evident in legislation and in endorsements by the UK Government and also the judiciary. At the EU level, rescue has also become a major focus of attention. In the UK, the banks have instituted new intensive care regimes and a new group of turnaround specialists has come onto the scene to assist in the process of dealing with corporate troubles at an ever-earlier stage in their development. In parallel, increasing attention is being paid to the management of risks to corporate welfare. On the other hand, the advent of ‘the new capitalism’ and the commodification of credit have produced a fragmentation of interests in troubled companies and a new set of pressures that favour exiting from relationships with distressed firms rather than doctoring such companies. This fragmentation has reduced the role of the ‘London Approach’ and has given rise to new challenges in securing agreements to informal turnaround proposals.

    Against this background, considerable changes have been made to insolvency procedures in recent times. The phasing out of administrative receivership to the point of near extinction has been accompanied by a remodelling of administration, and a moratorium for small companies has been added to the CVA procedure. The Crown's status as preferential creditor has been removed and the ‘prescribed part’ has been introduced in order to provide greater economic protection for unsecured creditors. Holders of floating charges have not only largely lost the right to appoint administrative receivers but have been made to bear the cost of giving unsecured creditors the benefit of the prescribed part. As for fixed charge holders, membership of this club has been restricted after Spectrum Plus and the courts’ new inclination to treat chargesover book debts as floating rather than fixed. The use of the ‘pre-packaged’ administration has led to new levels of concern regarding the undermining of statutory procedures and the substitution of closed agreements for traditionally more transparent processes. This has produced a regulatory response primarily through selfregulation, with the threat of direct statutory intervention lurking in the background.

  • 13 - Gathering the Assets: The Role of Liquidation

  • from PART IV - Gathering and Distributing the Assets
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 453-510

  • Summary

    Liquidation is the end of the road for the troubled company. It involves its winding up and the gathering in of the assets for subsequent distribution to creditors. On the commencement of liquidation the principle of collectivity takes effect and this is reflected in a moratorium on hostile actions and the restraining of uncompleted executions. Liquidation, nevertheless, raises issues of efficiency, expertise, accountability and fairness as much as processes involving prospects of rescue. This chapter explores those issues as well as the conceptual underpinnings of liquidation. Liquidations are encountered in three main forms: voluntary, compulsory and public interest, and to set the scene, it is necessary to review the varieties of liquidation and the legal framework that supports the liquidation process.

    The Voluntary Liquidation Process

    A voluntary liquidation of a solvent company is termed ‘a members’ voluntary winding up’ and, where an insolvent company is involved, this is then known as ‘a creditors’ voluntary winding up’. This distinction flows from the Insolvency Act 1986 sections 89 and 90 which provide that if the directors have made a statutory declaration of solvency under section 89, a members’ voluntary liquidation occurs, but that the liquidation is a creditors’ voluntary liquidation in the absence of such a declaration.

    Both types of voluntary liquidation are, however, triggered by the actions of the company's members. These members can initiate a winding up by passing a special resolution in favour of a voluntary liquidation. Resolutions must be advertised in the Gazette within fourteen days of passing (on penalty of a fine where the officers of a company are in default).

    After 6 April 2017 creditor involvement in a CVL no longer has to come by means of a physical creditors’ meeting. The Insolvency (England and Wales) Rules 2016 (SI 2016/1024) have come into force to institute new procedures. The effect of sections 122 and 126 and Schedule 9 of the Small Business, Enterprise and Employment Act 2015, coupled with Part 15 of the new Insolvency Rules is that, in a CVL, a physical creditors’ meeting will not be mandatory but can be replaced by a virtual decision or even by ‘deemed consent’ pursuant to s. 246ZF of the 1986 Act.

  • 6 - Rescue

  • from PART III - The Quest for Turnaround
  • Vanessa Finch, London School of Economics and Political Science, David Milman, Lancaster University
  • Book:
    Corporate Insolvency Law
    Published online:
    06 August 2018
    Print publication:
    19 October 2017, pp 197-243

  • Summary

    This part of the book assesses the role of rescue procedures in insolvency. We begin by considering what rescue involves, the reasons why rescue may be worth attempting, the different routes to rescue and the UK's new focus on rescue and ever-earlier responses to corporate troubles. The chapter then considers how different countries’ rescue regimes can be compared.

    What Is Rescue?

    Rescue procedures involve going beyond the normal managerial responses to corporate troubles. They may operate through informal mechanisms as well as formal legal processes. It is useful, therefore, to see rescue as ‘a major intervention necessary to avert eventual failure of the company’. This allows the exceptional nature of rescue action to be captured and it takes on board both informal and formal rescue strategies.

    Central to the notion of rescue is, accordingly, the idea that drastic remedial action is taken at a time of corporate crisis. The company, at such a point, may be in a state of distress or it may have entered a formal insolvency procedure. Whether or not a rescue can be deemed a success raises a further set of issues. Complete success might be thought to involve a restoration of the company to its former healthy state but in practice this scenario is unlikely. The drastic actions that rescue necessarily involves will almost inevitably entail changes in the management, financing, staffing or modus operandi of the company and there are likely to be winners and losers in this process. As Belcher observes: ‘All rescues can be seen as, in some sense, partial.’ This observation also serves to point out that a rescue may be ‘successful’ from the point of view of some parties (for example, shareholders or employees) but not from the perspective of others (for example, managers or creditors). Assessments of rescues may accordingly have to be qualified in order to reflect these different points of view.

    It is worth stressing that the mere survival of a company in the wake of renegotiations does not necessarily indicate that a successful rescue has occurred.

Page 1272 of 1932