Related Party Transactions in Insolvency

27 Pages Posted: 7 May 2018

See all articles by Kristin van Zwieten

Kristin van Zwieten

University of Oxford - Faculty of Law

Date Written: May 2018

Abstract

Transaction avoidance rules are widely considered to be an important tool for the regulation of related party transactions in insolvency. Existing ‘best practice’ guidance on the design of insolvency laws assumes that such avoidance rules are best operationalised within collective insolvency procedures. But in many jurisdictions the commencement of collective insolvency proceedings is value destructive; so much so that creditors may prefer to see firms fail outside such proceedings, even if this means foregoing opportunities to use the avoidance tools available within them. This suggests that avoidance tools may be most powerful when available outside insolvency proceedings as well as within them. Many jurisdictions do have some such form of avoidance action, often described as the ‘actio Pauliana outside bankruptcy’, on their statute books. But these forms of action have been neglected in the literature on the control of related party transactions in insolvency, and, perhaps as a consequence, have not benefited from international initiatives to improve the operation of domestic insolvency rules in cross-border cases in the same way that transaction avoidance actions brought in connection with collective insolvency proceedings have benefited. The chapter begins by evaluating the case for approaching transaction avoidance within insolvency proceedings, before turning to consider aspects of the design of the ‘actio Pauliana outside bankruptcy’, including measures to improve its efficacy in cross-border cases.

Keywords: corporate bankruptcy, corporate insolvency, related party transactions, transaction avoidance, creditor rights

JEL Classification: G33, K22

Suggested Citation

van Zwieten, Kristin, Related Party Transactions in Insolvency (May 2018). European Corporate Governance Institute (ECGI) - Law Working Paper No. 401/2018. Available at SSRN: https://ssrn.com/abstract=3173629 or http://dx.doi.org/10.2139/ssrn.3173629

Kristin Van Zwieten (Contact Author)

University of Oxford - Faculty of Law ( email )

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom

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