Corporate Insolvency in the United Kingdom: The Impact of the Enterprise Act 2002

24 Pages Posted: 26 Jun 2008 Last revised: 16 Apr 2013

See all articles by John Armour

John Armour

University of Oxford - Faculty of Law; University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Audrey Wen‐Hsin Hsu

National Taiwan University; University of Cambridge - Centre for Business Research (CBR)

Adrian Walters

Chicago-Kent College of Law - Illinois Institute of Technology

Date Written: June 1, 2008

Abstract

With effect from September 15, 2003, the Enterprise Act made significant changes to the governance of corporate rescue procedures in the United Kingdom which involved a shift away from a "concentrated creditor" model of governance towards a "dispersed creditor" model of governance which vests greater control rights in unsecured creditors collectively. These changes were motivated by fairness and efficiency concerns, notably the concern that the UK's administrative receivership procedure was not conducive to rescue outcomes and operated to the detriment of unsecured creditors. This article discusses the Enterprise Act reforms in the context of wider theoretical debates about the desirability (or otherwise) of secured creditor control of corporate rescue procedures. It then presents in summary form the findings of an empirical study carried out by the authors that sought to evaluate the impact of the Act by comparing the gross realizations, costs and net returns to creditors in a sample of 284 corporate insolvencies commenced before and after the law changed. Whilst we find that gross realizations have increased under the streamlined administration procedure, we also find that costs have increased. These findings imply that secured creditor control of the insolvency procedure (as in receivership) may be no worse for unsecured creditors than control by dispersed unsecured creditors (as in administrations) at least as regards returns.

Suggested Citation

Armour, John and Hsu, Audrey Wen‐Hsin and Walters, Adrian, Corporate Insolvency in the United Kingdom: The Impact of the Enterprise Act 2002 (June 1, 2008). European Company and Financial Law Review, Vol. 5, No. 2, June 2008. Available at SSRN: https://ssrn.com/abstract=1151785

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Audrey Wen‐Hsin Hsu

National Taiwan University ( email )

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University of Cambridge - Centre for Business Research (CBR) ( email )

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Adrian Walters

Chicago-Kent College of Law - Illinois Institute of Technology ( email )

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