Legal Capital: An Outdated Concept?

18 Pages Posted: 23 Jun 2006

See all articles by John Armour

John Armour

University of Oxford - Faculty of Law; University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Abstract

This paper reviews the case for and against mandatory legal capital rules in European corporate codes. It is argued that legal capital is no longer an appropriate means of safeguarding creditors' interests. This is most clearly the case as regards mandatory rules. Moreover, it is suggested that even an 'opt in' (or default) legal capital regime is unlikely to be a useful mechanism. However, the advent of regulatory arbitrage in European corporate law will provide a way of gathering information regarding investors' preferences in relation to such rules. Those creditor protection rules that do not further the interests of adjusting creditors will become subject to competitive pressures. Legislatures will be faced with the task of designing mandatory rules to deal with the issues raised by 'non-adjusting' creditors in a proportionate and effective manner, consistent with the Gebhard formula.

Keywords: G32, G38, K12, K22

JEL Classification: Corporate Law, Creditor Protection, Legal Capital

Suggested Citation

Armour, John, Legal Capital: An Outdated Concept?. European Business Organization Law Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=910826

John Armour (Contact Author)

University of Oxford - Faculty of Law ( email )

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HOME PAGE: http://www.law.ox.ac.uk/people/john-armour

University of Oxford - Said Business School ( email )

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HOME PAGE: http://www.sbs.ox.ac.uk/about-us/people/john-armour

European Corporate Governance Institute (ECGI) ( email )

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Belgium

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