Corporate Rescue, Governance and Risk Taking - Northern Rock and Its International Context

Company Lawyer, Vol. 29, No. 10, pp. 297-303, 2008

36 Pages Posted: 13 Jun 2009 Last revised: 2 Aug 2009

See all articles by Roman Tomasic

Roman Tomasic

University of South Australia; Durham University - Law School

Date Written: June 11, 2009

Abstract

The rescue of Northern Rock PLC by the Bank of England in September 2007 has been a significant event in the history of British banking and in the wider application of corporate rescue ideas. Following the first run on a British bank in over 140 years, the Bank of England stepped in to lend £28 billion in public funds to the failed bank and to replace its board of directors. Facing a liquidity crisis, but not insolvent, Northern Rock turned to the Bank of England for assistance. This saga is not unique as similar bank rescues are now occurring elsewhere. Their aim is to prop up and maintain confidence in the financial system following the US sub-prime mortgage crisis which caused an international liquidity crisis that led to the demise of many well known financial institutions. Poor corporate governance and defective legal regulation were amongst the key causes of the failure of the FTSE top 100 UK company, Northern Rock PLC. This paper reviews the background factors explaining the collapse of the bank, as well as some of the internal governance factors within the bank that contributed to its financial difficulties and eventual nationalisation by the UK government.

Keywords: UK, banking crisis, corporate rescue, insolvency, corporate governance, nationalisation

JEL Classification: G33, G21, E50, E44

Suggested Citation

Tomasic, Roman A., Corporate Rescue, Governance and Risk Taking - Northern Rock and Its International Context (June 11, 2009). Company Lawyer, Vol. 29, No. 10, pp. 297-303, 2008, Available at SSRN: https://ssrn.com/abstract=1417953

Roman A. Tomasic (Contact Author)

University of South Australia ( email )

GPO Box 2471
ADELAIDE
City West, 5001
Australia

Durham University - Law School ( email )

Palatine Centre
Stockton Road
Durham, Durham
United Kingdom

HOME PAGE: http://www.durham.ac.uk

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