The Future of Reorganization Procedures in the Era of Pre-Insolvency Law

Ibero-American Institute for Law and Finance Working Paper No. 6/2018

Singapore Management University School of Law Research Paper No. 34/2019

28 Pages Posted: 6 Dec 2018 Last revised: 7 Oct 2019

See all articles by Aurelio Gurrea-Martínez

Aurelio Gurrea-Martínez

Singapore Management University - School of Law

Date Written: January 20, 2019

Abstract

Several countries and regions around the world, including Singapore, the United Kingdom, and the European Union are amending their restructuring framework to implement a pre-insolvency mechanism that includes most of the features existing in the US Chapter 11. However, unlike what happens in the United States, where unsuccessful reorganizations lead to Chapter 7 liquidations, companies using this ‘de facto Chapter 11’ (DFCH11) will be still allowed to use formal reorganization procedures. This paper argues that, while the rise of the DFCH11 is not necessarily undesirable provided that various protections are put in place, jurisdictions implementing this restructuring tool need to adapt their formal insolvency framework to this new era of ‘pre-insolvency law’. Otherwise, some inefficiencies can be created from the lack of coordination between insolvency and pre-insolvency law, since non-viable firms as well as viable businesses managed by the wrong people can opportunistically delay the commencement of a liquidation procedure even when it is the most desirable outcome for the creditors and society as a whole.

Keywords: bankruptcy, corporate insolvency, reorganization, debtor in possession, pre-insolvency proceedings, Chapter 11

Suggested Citation

Gurrea-Martínez, Aurelio, The Future of Reorganization Procedures in the Era of Pre-Insolvency Law (January 20, 2019). Ibero-American Institute for Law and Finance Working Paper No. 6/2018; Singapore Management University School of Law Research Paper No. 34/2019. Available at SSRN: https://ssrn.com/abstract=3290366 or http://dx.doi.org/10.2139/ssrn.3290366

Aurelio Gurrea-Martínez (Contact Author)

Singapore Management University - School of Law ( email )

55 Armenian Street
Singapore, 179943
Singapore
(+65) 6808-5160 (Phone)

HOME PAGE: http://https://law.smu.edu.sg/faculty

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