Consistency of Principle in Corporate Insolvency
281 Pages Posted: 19 Mar 2002
Date Written: December 2001
The objective of this extended paper is to produce a systematic and principled study of the theory of some of the most important aspects of English corporate insolvency law. It aims to present this body of law as a coherent whole, stemming from common fundamental principles, and amenable to being justified or criticised on that basis.
At a high level of abstraction, the principle which is argued to underlie the law governing corporate insolvency is that all the parties affected by it are to be regarded as worthy of equal care and concern. This implies that equal attention and respect must be accorded to the interests of them all. To the extent that it succeeds in being egalitarian in this way, the law is fair and just. The argument draws on the work of John Rawls and Ronald Dworkin to construct a framework within which the relevant rules and principles of insolvency law can be tested for compliance with this fundamental requirement. The argument is also very much alive to considerations of economic efficiency.
The paper consists of seven chapters. English insolvency law is of course very diverse and has evolved over a considerable period of time. It would be surprising if it did not reflect the influence of the numerous political and ideological struggles which would have been part of the legislative and judicial context at various stages of its development. Given this undeniable fact, the very notion that some common fundamental principles could be found woven into it as a whole has been questioned. The first chapter presents a way of understanding the project of the paper, and thus of meeting this objection. The second chapter examines and criticises the Creditors' Bargain, the best-known analytical and justificatory model in insolvency law. The third constructs an alternative (referred to as the Authentic Consent Model) while seeking to avoid the various shortcomings which it identifies in the Bargain and in other approaches extant in the literature. Chapters four, five, and six deploy the new Model alongside of economic analysis to examine three of the most basic features of English insolvency law, namely, the pari passu principle, the priority accorded to secured claims, and the liability of directors for wrongful trading. The seventh chapter concludes.
Keywords: Insolvency law, fairness, efficiency, Creditors' Bargain, Authentic Consent Model, pari passu, security, equality, UK law
JEL Classification: D23, K19, K22, K39
Suggested Citation: Suggested Citation