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Summary

This chapter starts by explaining that, when a company becomes factually insolvent but it is not yet subject to a formal insolvency proceeding, the shareholders – or the directors acting on their behalf – may engage, even in good faith, in various forms of behavior that can divert or destroy value at the expense of the creditors. For this reason, most jurisdictions around the world respond with a variety of strategies, including the imposition of special directors’ duties in the zone of insolvency. This chapter identifies six regulatory models for the design of directors’ duties in the zone of insolvency. After examining the advantages and weaknesses of each regulatory model, this chapter emphasizes that the desirability of a particular approach depends on a variety of country-specific and firm-specific factors. It concludes by suggesting various policy recommendations for the design of directors’ duties in the zone of insolvency in emerging economies.

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5 - Directors’ Duties in the Zone of Insolvency in Emerging Economies

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5 - Directors’ Duties in the Zone of Insolvency in Emerging Economies

Summary