How to Fund Assetless Estates in Insolvency? Assessing European Funding Mechanisms

Abstract

Insolvency law faces the challenge of properly liquidating insolvent estates. To achieve this, insolvency representatives need to be skilled, and paid. Countries have adopted different models for compensating insolvency representatives who liquidate estates. While a proper insolvency funding mechanism is important, the topic has received little scholarly attention, particularly with respect to the effects, benefits, and dangers of funding mechanisms in insolvency. This paper explores several mechanisms and distinguishes several models: insolvency estate funding, state funding, third party funding, not opening an insolvency procedure at all. Using evidence from the U.K., Germany, and the Netherlands, this paper (1) demonstrates the dangers of insolvency estate funding, (2) explores whether state funding models, not opening an insolvency procedure or third party funding models can resolve the issues related to insolvency estate funding, and (3) discusses the limitations of the models. The results raise several questions as to what is the best way to liquidate estates.

Keywords: insolvency law, bankruptcy law, insolvency estate funding, state funding, third party litigation funding, comparative, empirical

JEL Classification: G33