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The Future of Corporate Insolvency Law – A Review of Technology and AI Powered Changes

Forthcoming in the International Insolvency Review

19 Pages Posted: 7 Aug 2023

Akshaya Kamalnath

ANU College of Law

Date Written: July 20, 2023

The conversation about how artificial intelligence (AI) might affect various areas of law (and other areas of life) has, in recent months, centred around ChatGPT which is just one application of AI. This article takes a broader view and assesses how AI, and technology more broadly, has begun to transform, and will continue to transform corporate insolvency law. While the pandemic has increased the adoption of technology in corporate insolvency processes, there is scope for further transformation. This article aims to survey the technological changes to corporate insolvency law and practice thus far and assess, based on current advances in technology, the potential for further transformation. It advances the argument that technology can improve efficiencies both prior to and during formal insolvency resolution processes. It therefore would be in the interests of every country to facilitate the adoption of technology at various points in the insolvency process. The article takes a cross-jurisdictional approach so as to identify tech advances in insolvency law across different countries based on which best practices and guidelines can be outlined.

Keywords: Insolvency, technology, AI, insolvency professionals, Chat GPT, e-portals, SMEs, ADR, pre-insolvency

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The Future of Insolvency Law in a Post-Pandemic World

Aurelio Gurrea Martínez Associate Professor of Law, Singapore Management University

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The COVID-19 crisis has encouraged many countries to amend their insolvency laws.  In most cases, these amendments took place temporarily—especially during the hibernation phase of the pandemic. In other countries, however, the pandemic has led to permanent changes in the insolvency legislation. More importantly, the COVID-19 crisis has accelerated the insolvency reforms already existing in the political agenda of many countries, and it has encouraged other jurisdictions to reassess the desirability of their insolvency and restructuring frameworks.

In a recent article, entitled ‘ The Future of Insolvency Law in a Post-Pandemic World ’, I analyse various trends, reforms and policy discussions probably reshaping the future of insolvency law.

First, prior to the COVID-19 outbreak, various jurisdictions, such as the United States and Myanmar , adopted special insolvency rules for MSMEs. Moreover, the design of simplified insolvency rules for MSMEs was already in the agenda of various international organizations such as the World Bank and UNCITRAL. Since the pandemic started, however, many other jurisdictions, including Australia , Colombia , India and Singapore , have adopted permanent or temporary frameworks for MSMEs. In the near future, it is expected that these frameworks will be adopted in more countries around the world, especially after the publication of the new section for MSMEs included in the revised version of the World Bank’s Principles for Effective Insolvency and Creditor/Debtor Regimes ,  as well as the approval of the legislative recommendations for the adoption of simplified insolvency frameworks for MSMEs by UNCITRAL .

Second, the pandemic has also accelerated the adoption of ‘ hybrid procedures ’—that is, restructuring procedures usually combining elements from both informal workouts and formal insolvency proceedings.  Indeed, while the adoption of these procedures was already in the political agenda in many countries (eg, the United Kingdom) and regions (eg, the European Union), the COVID-19 crisis has accelerated the implementation of hybrid procedures, as shown by the adoption of the new restructuring plan in the United Kingdom , and the new restructuring frameworks in Germany and the Netherlands . In other jurisdictions, such as Colombia , a hybrid procedure has been temporarily adopted as a response to the pandemic. Finally, other jurisdictions, including Australia, have announced that they are assessing the possibility of adopting a moratorium and other restructuring tools in their scheme of arrangement, as Singapore did in 2017. In the following years, it is expected that more countries will adopt hybrid procedures either because they are required to do so (eg EU countries) or because the stigma and inefficiencies of their formal insolvency frameworks will encourage the embrace of these procedures.

Third, the COVID-19 crisis has encouraged many countries to facilitate workouts. Even if the pandemic leads to the improvement of many insolvency systems, using the formal insolvency or restructuring framework can still be costly.  Therefore, it is expected that, in a post-pandemic world, countries will continue to promote workouts, and this strategy will be even more desirable in countries with inefficient insolvency frameworks, as generally occurs in emerging economies .

Fourth, many MSMEs are not incorporated.  Even if they are, the shareholders/managers often guarantee the company’s debts.  Therefore, in practice, they are exposed to unlimited liability. Even though the empirical literature has evidenced the economic benefits associated with the adoption of a discharge of debts for honest but unfortunate entrepreneurs,  many countries around the world —especially emerging economies—have not fully embraced this policy yet. The recent push for the adoption of a fresh start policy for individual entrepreneurs, especially as part of the reforms for MSMEs suggested by the World Bank , the International Monetary Fund and UNCITRAL , is expected to encourage more countries to adopt this reform. In fact, some jurisdictions traditionally reluctant to this policy, such as China, have recently adopted—so far, only in Shenzhen —a new personal insolvency regime facilitating a discharge of debts for individual entrepreneurs. It is expected that more countries will follow this trend in a post-pandemic world.

Finally, while not necessarily leading to permanent changes in insolvency law—at least so far—the COVID-19 crisis may encourage countries to rethink the desirability of various controversial rules existing in some jurisdictions, such as the imposition of strict directors’ duties in the zone of insolvency , the subordination of shareholder loans, the appointment of an external administrator replacing the directors in administration-style insolvency proceedings, and the lack of an attractive framework for debtor-in-possession (DIP) financing.

Countries modernizing their insolvency frameworks face several challenges. First, they need to make sure that, even if they improve the attractiveness of their restructuring frameworks, the insolvency system remains protective of the interests of the creditors. Otherwise, lenders may respond with an increase in the cost of debt, ultimately harming firms’ access to finance and the promotion of economic growth. Therefore, an insolvency reform initially seeking to support the real economy may end up doing more harm than good. Second, many countries (especially emerging economies) still need many reforms and educational efforts to improve their market and institutional environments. Third, even though the rise of new technologies is bringing many opportunities for the insolvency industry, it is also creating many challenges that will need to be addressed in the coming years.

Despite these challenges, however, it is expected that, due to the reforms and enriching policy discussions taking place in times of COVID-19, the attractiveness of many insolvency systems will be significantly improved in a post-pandemic world. Therefore, it seems that, at least in terms of insolvency and restructuring laws, the COVID-19 pandemic will help us emerge stronger.

Aurelio Gurrea-Martínez  is an Assistant Professor of Law and Head of the Singapore Global Restructuring Initiative at the Singapore Management University Yong Pung How School of Law.

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In review: insolvency law, policy and procedure in USA

An extract from The Insolvency Review, 7th Edition

Insolvency law, policy and procedure

Although individual states in the United States have laws that govern the relationship between debtors and their creditors, insolvency law is primarily dictated by federal law because Article 1, Section 8 of the United States Constitution grants Congress the power to enact 'uniform Laws on the subject of Bankruptcies'. While over time several different bankruptcy statutes have been passed by Congress, the US bankruptcy regime is currently set forth in Title 11 of the United States Code (the Bankruptcy Code), which codified the Bankruptcy Reform Act of 1978 and subsequent amendments. The most recent significant amendment to the Bankruptcy Code was the 2005 Bankruptcy Abuse and Consumer Protection Act.

The Bankruptcy Code is composed of nine chapters. Chapters 1, 3 and 5 provide the structural components that generally apply to all bankruptcy cases, and Chapters 7, 9, 11, 12, 13 and 15 lay out general procedures specific to certain types of bankruptcies. In general terms, these specific types of bankruptcies are:

• trustee-administered liquidation (Chapter 7);
• municipality bankruptcy (Chapter 9);
• debtor-in-possession (DIP) managed reorganisation or liquidation (Chapter 11);
• family farmer and fisherman bankruptcies (Chapter 12);
• individual bankruptcies (Chapter 13); and
• cross-border cases (Chapter 15).

In general terms, with respect to plenary corporate bankruptcies, US insolvency law provides for two distinct regimes: a trustee-controlled liquidation under Chapter 7 and a DIP-controlled reorganisation or structured liquidation under Chapter 11. This chapter focuses on Chapter 11 proceedings. Certain key provisions of US insolvency law are discussed in the remainder of this section.

One of the most important provisions of the US insolvency regime is the 'automatic stay', which is codified in Section 362 of the Bankruptcy Code. The automatic stay is a statutory injunction that applies immediately upon the commencement of a bankruptcy proceeding. Generally, the automatic stay operates to enjoin most creditors from pursuing actions or exercising remedies to recover against a debtor's property. There are limited exceptions to the automatic stay and it can be modified by a court upon a showing of cause. The automatic stay provides the breathing room necessary for the debtor or trustee to assess and assemble all the property of the estate without creditors seeking remedies to protect their own self-interests. Accordingly, the automatic stay allows for the preservation of a debtor's assets and the maximisation of their value, and for an equitable distribution of those assets to creditors.

One important exception to the automatic stay is that it generally does not apply to contracts that are colloquially referred to as 'financial contracts'. Specifically, the automatic stay does not apply to certain delineated counterparties' ability to offset, net, liquidate, terminate or accelerate securities contracts, commodities contracts, forward contracts, repurchase agreements, swap agreements or master netting agreements with a debtor, provided that the counterparty may be required to exercise its remedies promptly. In addition, a debtor may not avoid as a fraudulent transfer a transfer to such a counterparty under one of these contracts unless the transfer is intentionally fraudulent.

The absolute priority rule provides that creditors with higher priority must be paid in full before creditors of lower priority receive any distribution from a bankruptcy estate, and thereby ensures a 'fair and equitable' distribution of the debtor's property consistent with the priorities under the applicable non-bankruptcy law. As a result, in the absence of consent, secured claims must be paid in full from collateral before general unsecured creditors receive any recovery. Similarly, because equity holders have the lowest priority, in the absence of consent, they cannot receive any distribution until all creditors have received payment in full on account of their allowed claims. Consent to the payment of a junior class can be obtained through a vote of the senior class on a plan of reorganisation.

The Bankruptcy Code also provides a number of procedures that allow a debtor or trustee to avoid a pre-bankruptcy transfer of property from the bankruptcy estate. This allows the debtor to maximise the value of the bankruptcy estate and prevent a depletion of the estate prior to the commencement of the bankruptcy proceeding that may favour certain creditors over others. These protections are found in Chapter 5 of the Bankruptcy Code. The most commonly used of these actions are:

• avoidance of preferential transfers, which enables an insolvent debtor, subject to certain defences, to avoid and recover payments based on antecedent debt made to creditors within the 90 days prior to the debtor's filing for bankruptcy – up to one year for payments made to insiders of the debtor;
• avoidance of fraudulent transfers, which enables the debtor to avoid and recover transfers of property that were actually fraudulent or were made while the debtor was insolvent and for less than reasonably equivalent value; and
• avoidance of unperfected security interests, which enables a debtor to avoid liens on property if those liens were not perfected under the applicable non-bankruptcy law prior to the commencement of the bankruptcy case.

The goal of US insolvency law is to provide maximum return to the creditors (and, if possible, equity holders) of a debtor and, in that context, to reorganise rather than liquidate business debtors to preserve employment and to realise the 'going concern surplus' of reorganisation value over liquidation value. This is accomplished by reorganising a debtor corporation under the provisions of Chapter 11 of the Bankruptcy Code. However, if a reorganisation is not possible – or if it would not result in a maximisation of value for creditors – the debtor company can be liquidated either under Chapter 11 or Chapter 7 of the Bankruptcy Code. Chapter 7 transfers the control of the liquidation process from the debtor's management, who are likely to have greater familiarity with the assets and their value, to a trustee appointed by the US Trustee or elected by the debtor's creditors. Chapter 7 liquidations usually result in lower recoveries for creditors. Therefore, companies are more likely to be liquidated under Chapter 7 if there are not sufficient funds in the estate or available to the estate to run a Chapter 11 process.

As discussed in Section I.ii, the Bankruptcy Code provides for two main types of insolvency proceedings available to businesses with assets in the United States: Chapter 7 and Chapter 11.

Chapter 7 is a trustee-controlled liquidation. The goal of Chapter 7 is to ensure the most efficient, expeditious and orderly liquidation of a debtor's assets to be distributed to the creditors and equity holders. Companies cannot reorganise under Chapter 7.

The Chapter 7 liquidation procedure is administered by a Chapter 7 trustee who is selected either by the US Trustee or by an election conducted by certain creditors. The Chapter 7 trustee is responsible for realising upon all the property of the estate and coordinating the distribution of that property or the proceeds of sales of that property.

Chapter 11 provides for an insolvency proceeding in which the directors and management of the debtor company remain in control (the DIP) unless a trustee is appointed for cause. Chapter 11 proceedings allow for the reorganisation of a debtor's operations and capital structure in the hope that the company will emerge from the bankruptcy process as a healthier, reorganised company. Chapter 11 gives the debtor the exclusive right to propose a plan of reorganisation for the first 120 days after commencement of the bankruptcy proceedings. This date may be extended until 18 months after the order for relief (the petition date of a voluntary case) if the debtor is making progress with a plan of reorganisation and can show cause why the court should extend the exclusivity period. The plan of reorganisation provides for how the debtor's assets will be distributed among the classes of creditors and equity holders. It is also possible for a debtor to liquidate its assets through Chapter 11, which is typically a more structured liquidation than one under Chapter 7.

The culmination of a Chapter 11 proceeding is the filing of the plan of reorganisation. The Chapter 11 plan provides how creditors' claims will be treated by the estate. Under the Chapter 11 plan, creditors and shareholders are divided into classes of holders sharing substantially similar claims or interests. Chapter 11 plans must meet certain standards to be confirmed. Even if a plan is accepted by the requisite vote of all impaired classes, it must be found by the court to be in 'the best interests of creditors' (providing each dissenting class member with at least what would have been recovered in a liquidation). As to a class that rejects the plan, the plan must satisfy the Bankruptcy Code's 'fair and equitable' requirement (described in Section I.i).

The plan of reorganisation is submitted to a vote of the various creditor and shareholder classes. If at least one class that stands to receive less than their asserted claim (an impaired class) votes in support of confirmation, excluding insider 'yes' votes, the plan can be confirmed over the dissent of another impaired class. Dissenting classes can thus be crammed down so long as the plan is fair and equitable and does not discriminate among creditors in a similar situation. Once the plan is approved by the necessary stakeholders, a court can confirm a plan, so long as certain other prerequisites of Section 1129 of the Bankruptcy Code are satisfied.

Chapter 15 is the Bankruptcy Code's codification of the United Nations Commission on International Trade Law (UNCITRAL) Model Law and allows a foreign debtor, through its 'foreign representative', to commence an ancillary proceeding in the United States to support its foreign insolvency proceeding.

As set forth in Section I.i, the US Bankruptcy Code provides for different types of insolvency proceedings, not all of which are available for all types of companies. Specifically, insurance companies and banking institutions cannot file for Chapter 7 or Chapter 11 bankruptcy; a railroad can be a debtor under Chapter 11 but not Chapter 7, and stockbrokers and commodity brokers can file for bankruptcy under Chapter 7 but not Chapter 11. Regardless of the type of bankruptcy case, under Section 301(a) of the Bankruptcy Code, a debtor voluntarily commences a plenary insolvency proceeding by filing a petition with the bankruptcy court.

A bankruptcy proceeding can also be commenced against a debtor company, which is known as an 'involuntary' bankruptcy case. An involuntary case is commenced upon the filing of a petition with the bankruptcy court by three or more holders of non-contingent, undisputed claims, and those claims aggregate at least US$15,775 more than the value of any lien on property of the debtor securing such claims. A bankruptcy court will order relief against the debtor in an involuntary case only if the debtor is generally not paying its debts as they become due, unless those debts are the subject of a bona fide dispute as to liability or amount, or if a custodian as described in Section 303(h)(2) of the Bankruptcy Code has been appointed.

A Chapter 15 case is commenced when the foreign representative of the debtor company files a petition for recognition of the foreign proceeding with the US bankruptcy court.

Under Chapter 7, the insolvency proceeding is controlled by a trustee who is appointed by the US Trustee or elected by the debtor's creditors to administer the debtor's assets. The Chapter 7 Trustee is responsible for, among other things, 'collect[ing] and reduc[ing] to money the property of the estate for which such trustee serves, and closes such estate as expeditiously as is compatible with the best interests of parties in interest'. Although the Chapter 7 Trustee can continue business operations for a short period if value is maximised by doing so, generally, once a Chapter 7 Trustee has been appointed, the debtor company is expeditiously liquidated.

Chapter 11 proceedings allow for a debtor's existing management and directors to stay in place and operate the business during the bankruptcy case. For this reason, a debtor in a Chapter 11 proceeding is referred to as the 'DIP'. The board of directors' primary duties in connection with an insolvency proceeding are the same as they are outside bankruptcy – to maximise the value of the company. The key distinction is that when a company is insolvent, the creditors, not the shareholders, are the residual beneficiaries of the board's fiduciary duties to the corporation and are, thus, able to bring actions for breach of fiduciary duty. If it is in the best interests of the estate and its creditors, a trustee may be appointed to replace the DIP and administer a Chapter 11 case.

During a Chapter 7 or Chapter 11 case, the DIP or trustee may take actions that are in the ordinary course of the debtor's business without approval of the bankruptcy court. Actions after entry of the order for relief outside the ordinary course of business are subject to bankruptcy court approval.

Bankruptcy courts in the United States are courts of limited jurisdiction. This is because, unlike federal district and circuit courts, they were not created under Article III of the United States Constitution. Instead, Congress created the bankruptcy courts because they were 'necessary and proper' to effectuate Congress's enumerated powers to enact bankruptcy law. For this reason, bankruptcy courts may only oversee matters that are 'core' to the bankruptcy case unless the parties knowingly and voluntarily consent to adjudication of a 'non-core' matter by the bankruptcy court. Without consent, matters that are not 'core' to the insolvency proceeding must be decided by a federal district court. Appeals of bankruptcy court decisions are generally heard, in the first instance, by the federal district court sitting in the same jurisdiction as the applicable bankruptcy court. Bankruptcy court jurisdiction is the subject of much debate under a series of recent Supreme Court cases.

Among other things, the bankruptcy court manages filing deadlines, hears evidence on contested issues and issues orders regarding requests for relief by the parties. Nevertheless, and despite the involvement of the court, many aspects of the bankruptcy process are negotiated by the parties outside the courtroom and the DIP or trustee is free to enter into settlement agreements, which are then subject to the approval of the bankruptcy court.

Securities broker-dealers are not eligible for relief under Chapter 11. Instead, insolvent broker-dealers may liquidate under Chapter 7 of the Bankruptcy Code, but are more likely to be resolved in a proceeding under the Securities Investor Protection Act of 1970 (SIPA). SIPA proceedings are liquidation proceedings, and upon commencement thereof, the broker-dealer will cease to conduct business as a broker-dealer, subject to certain limited exceptions. In SIPA proceedings, a trustee (the SIPA trustee) will take control of all property, premises, bank accounts, records, systems and other assets of the broker-dealer and displace management. The SIPA trustee's primary duties are to marshal assets, recover and return customer property (including through effectuating bulk account transfers to a solvent broker-dealer) and liquidate the broker-dealer.

In SIPA proceedings, the provisions of Chapters 1, 3 and 5 and Subchapters I and II of Chapter 7 of the Bankruptcy Code will also apply, to the extent consistent with SIPA, and the SIPA trustee will generally be subject to the same duties as a trustee under Chapter 7 of the Bankruptcy Code, with certain limited exceptions regarding securities that are the property of customers of the broker-dealer. If the broker-dealer is a registered futures commission merchant under the Commodity Exchange Act of 1936, the SIPA trustee will have additional obligations under the Part 190 regulations promulgated by the Commodity Futures Trading Commission, with respect to any commodity customer accounts that have not been transferred to another futures commission merchant prior to the filing date.

Although bank holding companies can file for Chapter 11 relief, their subsidiary depository institutions are not eligible for relief under the Bankruptcy Code, and are typically resolved by the Federal Deposit Insurance Corporation (FDIC) under the Federal Deposit Insurance Act. The FDIC has the authority to market a failed depository institution for sale to another depository institution, or the FDIC can insert itself as a receiver, close the bank and liquidate its assets to pay off creditors. The powers of the FDIC as receiver are very similar to those of a trustee in bankruptcy.

Additionally, the Dodd–Frank Wall Street Reform and Consumer Protection Act established the Orderly Liquidation Authority (OLA), which provides that the FDIC may be appointed as receiver for a top-tier holding company of a failing financial institution that poses a systemic risk to financial stability in the United States. OLA sets forth the procedures that the federal government can take to cause the wind-down of financial institutions that were once considered 'too big to fail'. Pursuant to OLA, the FDIC can exercise many of the same powers it has as a bank receiver to liquidate systemically risky financial institutions. Moreover, under the Dodd–Frank Act, institutions that may be subject to OLA must provide the FDIC with resolution plans (commonly known as living wills) to serve as road maps in the event that the financial institution requires resolution.

State law governs all regulation of insurance companies, including the resolution of insolvent insurance companies.

The Bankruptcy Code has mechanisms for dealing with the insolvency proceedings of corporate groups and there is no special regime to address these types of filings. If multiple affiliated companies in the same corporate group seek relief under the US Bankruptcy Code, they will file separate bankruptcy petitions but will often seek joint administration of the various bankruptcy proceedings, meaning that the bankruptcy cases of each member of the group will be overseen by the same judge, which provides for greater efficiency in the administration of the cases. Importantly, joint administration does not mean that the assets and liabilities of the group will be combined. Rather, corporate separateness will be observed despite the joint administration of the cases, unless there is cause to breach corporate separateness and 'substantively consolidate' the assets and liabilities of the debtor.

As part of the 2005 Bankruptcy Abuse and Consumer Protection Act, the United States enacted Chapter 15 of the Bankruptcy Code, which is based on the UNCITRAL Model Law on Cross-Border Insolvency (the Model Law). Chapter 15 governs how a US court should treat a foreign insolvency proceeding when no plenary proceedings have been commenced in the United States and provides a mechanism for the cooperation between the US court and the foreign court overseeing a debtor's plenary insolvency proceeding. Generally, Chapter 15 allows for the commencement of an ancillary proceeding upon recognition of the debtor's foreign proceeding. Once the foreign proceeding is recognised by the US bankruptcy court, the automatic stay applies to the debtor and the property of the debtor that is within the territorial jurisdiction of the United States and the debtor's foreign representative enjoys certain powers and privileges under the Bankruptcy Code, such as the right to intervene in any court proceeding in the United States in which the foreign debtor is a party, the right to sue and be sued in the United States on the foreign debtor's behalf, the authority to operate the debtor's business and the authority to initiate avoidance actions in a case pending under another chapter of the Bankruptcy Code.

The bar for accessing plenary proceedings in the US bankruptcy courts is relatively low. A company can be eligible to commence a Chapter 11 proceeding in a US bankruptcy court so long as it is incorporated or has any property or operations in the United States. Because of the perceived debtor-friendliness of US bankruptcy courts and the courts' vast experience in restructuring large multinational companies, many multinational companies are filing for Chapter 11, even if their principal place of business, or centre of main interest, is located outside the United States. This trend has been particularly prevalent in the shipping industry. For example, the Taiwan-based TMT Group opened an office in Houston only a few days before filing for Chapter 11 protection in the United States Bankruptcy Court for the Southern District of Texas.

Overview of restructuring and insolvency activity

Since the global financial crisis, when gross domestic product adjusted for inflation (real GDP) dropped by 2.8 per cent from 2008 to 2009, the US economy has experienced a period of slow growth. Real GDP increased in the fourth quarter of 2018 at an average annual rate of 2.2 per cent and at an average annual rate of 2.1 per cent in the second quarter of 2019. Furthermore, reported unemployment continues to abate: the rate for July 2019 was 3.7 per cent, down slightly from 3.9 per cent in July of the previous year and from its October 2009 high of 10 per cent.

Additionally, credit has been readily available to US businesses. In 2018, US corporations issued almost US$1.53 trillion in bonds, a decline from the US$1.81 trillion issued in 2017 but still more than the US$1.49 trillion issued in 2016. During the first five months of 2019, more than US$750 billion worth of bonds were issued. The 10-year Treasury rate has ranged between 1.52 per cent and 2.79 per cent in the current calendar year, while in 2018, the rate ranged between 2.44 per cent and 3.24 per cent.

US equity markets have remained robust during July 2019, though volatility has been increasing in recent months. Specifically, US equity and equity-related proceeds totalled US$213.3 billion on 898 deals in 2018, which represents a 3.4 per cent increase in proceeds compared to the US$206.2 billion raised in 2017, though the number of deals declined by approximately 1.8 per cent from the 914 in 2017. US equity and equity-related proceeds in 2017 were approximately 14.5 per cent more than the US$180 billion raised in 2016 and 7.5 per cent less than the US$229.3 billion raised in 2015. Similarly, the number of deals in 2018 was 25.4 per cent greater than the 716 in 2016 and 5.4 per cent more than the 852 in 2015.

US corporate default rates have fluctuated since 2018. Moody's measured the US speculative-grade default rate in March 2019 at 2.4 per cent, compared to default rates of 2.8 per cent at the end of 2018 and 3.4 per cent at the end of 2017. Moody's indicated that the leveraged loan default rate has held steady at 1.9 per cent from December 2018 to March 2019, compared with the March 2018 rate of 2.9 per cent and 2017 first quarter rate of 2.2 per cent.

The frequency of business bankruptcy filings remains well below its peak in 2010, and although many businesses continue to seek bankruptcy relief as a result of significant challenges in sectors of the US economy, 2018 marked a significant decrease in filings as compared to recent years: 58 public companies filed Chapter 7 or Chapter 11 bankruptcy proceedings, representing an 18.3 per cent decrease from 71 public companies in 2017. Aggregate pre-petition assets totalled approximately US$52.056 billion in 2018, down from 2017's aggregate pre-petition assets of approximately US$106.931 billion. Following downturns in 2017, filings in the oil and gas/energy/mining sector and the retail industry represented seven of the top 10 public company Chapter 7 and Chapter 11 filings in 2018. As described in further detail in Section V.i, the energy/oil and gas and retail industries have continued to produce many of the most significant bankruptcies in the early part of 2019.

Ninety-eight companies commenced Chapter 15 proceedings in the 12 months ending on 31 March 2019, compared with the 64 Chapter 15 cases that were initiated during the 12 months ending on 30 June 2018. Further, tariffs and trade wars hang over the economy but have not yet materially affected filings.

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Centre for Corporate Law, National Law University Odisha ( hereinafter “CCL, NLUO”) proposes to come up with an edited volume with a multi-disciplinary approach on the “ Contemporary issues on the laws of Insolvency and Bankruptcy ”.

The Insolvency and Bankruptcy ( hereinafter “I&B”) Code was enacted with the aim to bolster the credit and capital markets in India. Similarly, through this initiative, the CCL, NLUO wishes to bolster research and contribute to the literature on the said subject by engaging Academicians, Professionals and Research Scholars researching and working in the field of I&B.

ABOUT THE EDITED BOOK

The Edited Volume will encompass several chapters thematically pertinent to the contemporary issues in the field of I&B. The submissions can be made in accordance with the following suggestive themes:

• Interplay of statutory dues and the Indian insolvency regime: An undue advantage?
• Insolvency in the Aviation Industry: Need of a separate legislation?
• Evolution of Moratorium under Section 14 of IBC: Empowered?
• Pre-Package Insolvency
• Avoidable Transactions under IBC, 2016
• Nexus between M&A and IBC, 2016
• Guarantors liability under IBC, 2016
• Group Insolvency in Indian Insolvency Regime
• Reverse Piercing of Corporate Veil: How does it supports the present Insolvency Regime?
• Settlement Agreements under IBC: Way out?
• Foreign Investment Instruments and IBC 2016
• Insolvency of RBI regulated entities in light of the recent DHFL saga
• Interplay between IBC and other legislations

However, the contributors shall not be restricted to the above-mentioned themes and are open to submit book chapters under the theme “ Contemporary issues on the laws of Insolvency and Bankruptcy ”.

Number of Chapters to be published shall be subject to the number of submissions, however, at least 5 chapters is a minimum number to be published on the said theme.

ABOUT THE CENTRE:

The CCL, NLUO as it is called, is an initiative of National Law University Odisha, Cuttack to promote interdisciplinary research in corporate law, and related fields like insolvency, commercial arbitration, securities, competition law, etc. The CCL, NLUO aims at creating an effective platform of discussion and discourse on latest issues and challenges in corporate law and related areas to come up with logical solutions and create awareness among the law students and the academia about the same. In furtherance of the objectives, CCL, NLUO has launched the “CCL Blog – Corporate Law Blog”. This would help bolster research within academia while simultaneously providing them with content abreast of updated information and analysis.

SUBMISSION PROCEDURE:

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The Rise of ‘Group Solution’ in Insolvency Law and Bank Resolution

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• Published: 29 July 2021
• Volume 22 , pages 781–811, ( 2021 )

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• Ilya Kokorin 1 , 2 , 3 , 4  

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This article traces the emergence of the concept of ‘group solution’ and its manifestations in insolvency law and bank resolution as an alternative to the rigid entity-by-entity approach. The rise of this concept can be linked to the recognition of the specificity of problems related to the insolvency of multinational enterprise groups, arising from group operational and financial interconnectedness. This has not happened at once, but has resulted from the evolution of views and ideas, evident in hard and soft law instruments of the 2000s and the 2010s. In light of this important development the article explores the concept of a group solution, its rationale, scope of application and limitations. It concludes that despite the gradual acceptance of the group phenomenon, a group solution has not been formed as a coherent and well-defined legal principle. Instead, it represents a variety of approaches, tools and practices, which pursue different policy objectives underpinned by different societal values. Among them are asset value maximization, business rescue, the protection of financial stability and the preservation of banks’ critical functions. With all its flexibility, a group solution has one pervasive limitation—it cannot trump the interests of individual group members and their creditors. At the same time, in order to realize the full potential of a group solution, it is necessary to embrace the group-sensitive and forward-looking interpretation of creditors’ interest, facilitating commercially sensible and practical group solutions.

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1 Introduction

The outbreak of COVID-19 and the subsequent drastic governmental measures to curb the pandemic have affected many businesses, small and large. It may be too early to fully grasp the consequences of COVID-19 and determine its long-term effects (if any) on the foundations of insolvency law. Footnote 1 The pandemic has severely affected international trade, bringing the world economy to a near standstill and intensifying ‘territorialist’ sentiments. Footnote 2 This particularly hits multinational enterprise groups, dependent on global supply chains and uninterrupted liquidity flows (e.g. airlines, automotive manufacturing). In the years to come we may expect an increase in the number of international group insolvencies, spanning across various jurisdictions and affecting networks of many smaller businesses. Does insolvency law offer a solution?

Insolvency law has traditionally been used as an instrument to resolve creditors’ claims in the most efficient way. This is done through a collective procedure, which replaces individual creditor action. A court supervises the use and disposition of assets and holds them together to preserve and maximize their value. Footnote 3 For a long time (and perhaps still), insolvency law has largely remained microprudential or single entity-focused, resulting in the entity-by-entity treatment of enterprise group members in financial distress. It is therefore primarily centred around post-crisis liquidation of the debtor’s assets and the allocation of sale proceeds among creditors of an individual legal entity.

However, modern insolvency law increasingly acknowledges the specificity of enterprise group insolvencies, premised on the existence of close operational and financial links and interdependencies between group members. It recognizes that the entity-by-entity approach often leads to the loss of group synergies, group disintegration and suboptimal outcomes for creditors, debtors and other stakeholders (e.g. employees). Footnote 4 As a result, since some two decades, tailored rules and recommendations addressing enterprise group insolvency have been proposed or adopted at the national (Germany), regional (European Insolvency Regulation, recast) Footnote 5 and international (UNCITRAL Model Law on Enterprise Group Insolvency) Footnote 6 levels. Recognition of corporate groups has gradually taken place both in insolvency law and in the area handling the failure of credit institutions and banking groups—bank resolution (Bank Recovery and Resolution Directive). Footnote 7

The accumulation of knowledge and the practice of dealing with multinational groups of companies in restructuring, insolvency and resolution justify an examination of these new legal instruments and developments. Specifically, this article explores whether a new phenomenon or even a legal principle of a ‘group solution’ (as opposed to an ‘entity solution’) has taken shape and has replaced or pushed aside the inflexible entity-by-entity approach. This examination is carried out by this article, which analyses five main questions: (i) what is a group solution?; (ii) which goal does a group solution seek to achieve?; (iii) how does it try to achieve it?; (iv) what are the limitations or boundaries of a group solution?; and (v) what are the strengths and weaknesses of modern approaches to a group solution?

The article proceeds as follows. Section 2 describes the evolution of approaches to corporate groups in insolvency law and highlights the persistent discrepancy between group economic reality and the legal responses to financial distress. Section 3 introduces the concept of a ‘group solution’ and explains its origin, rationale and major limitations in insolvency law. Section 4 illustrates how a group solution manifests itself in the context of the resolution of financial institutions and cross-border banking groups. It discusses the goals of bank resolution (4.1), group recovery and resolution plans (4.2), intragroup financial support agreements (4.3) and different resolution strategies (4.4). It also highlights the limits of group resolvability (4.5). Section 5 analyses the norms related to substantive consolidation, pointing out that such consolidation should not be considered a group solution stricto sensu . Section 6 provides a possible economic explanation for a group solution and calls for a broad interpretation of creditors’ interests. Section 7 questions whether a group solution forms a stand-alone legal principle and argues that it has not yet developed into a well-defined legal principle. Instead, it plays an important supporting and facilitating role. Section 8 concludes.

2 Recognition of a Corporate Group in Insolvency

2.1 the long-standing entity-by-entity approach.

Until recently the problem of the insolvency of corporate groups has not been widely recognized or addressed in hard and soft law. Thus, both the UNCITRAL Model Law on Cross-Border Insolvency (Model Law 1997), Footnote 8 the Directive on the reorganisation and winding up of credit institutions (CIWUD) Footnote 9 and the original European Insolvency Regulation (EIR 2000) Footnote 10 lack provisions addressing enterprise group insolvency. The explanation given by the UNCITRAL Working Group V, responsible for drafting the text of the Model Law 1997, is quite revealing. It stated that ‘[w]hen the text of what became the UNCITRAL Model Law on Cross-Border Insolvency (Model Law) was debated, groups were regarded as “a stage too far”.’ Footnote 11 This explanation can be easily extended to the European Union (EU) context. There are a number of reasons for the slow acceptance of corporate groups in insolvency.

First, one would expect that within European company and insolvency law special rules addressing groups of companies would have been developed, but the tension between the prevailing entity-by-entity approach and the economic reality of enterprise groups is not easy to tackle. Footnote 12 The entity-by-entity treatment of group entities in insolvency is firmly grounded in the long-established principle of entity separateness. Footnote 13 Its application in insolvency means that: (i) assets in an enterprise group are separated along the entity lines (one entity—one insolvency estate), (ii) creditors have legal rights (recourse) only with respect to particular entities and their assets, and (iii) insolvency practitioners appointed in individual companies act in the interests of the respective companies and their creditors. Wessels and Madaus call this a ‘five one’s’ principle as it establishes ‘one insolvent debtor, one estate, one insolvency proceeding, one court and one insolvency office holder’. Footnote 14 The fact that before insolvency the group operated as one integrated enterprise does not easily fit this atomistic vision.

Second, the very concept of a ‘group of companies’ has not been comprehensibly developed or harmonized across company laws. While some jurisdictions apply general corporate and/or civil law to enterprise groups (e.g. the UK), others have adopted special rules (e.g. Germany, Portugal, Slovenia). Footnote 15 Nevertheless, there is some convergence of approaches when it comes to agency problems arising in corporate groups, including conflicts between majority and minority shareholders, and shareholders and creditors. This convergence manifests itself in the rules concerning related-party transactions. In the vast majority of the EU Member States, but also outside the EU, company and insolvency laws establish special treatment for transactions involving related parties—shareholders and their affiliates, sometimes referred to as insiders. In company law this results in the safeguards against intragroup self-dealing, including the allocation of certain rights to minority shareholders (e.g. appraisal rights), disclosure and approval requirements. Footnote 16 In insolvency, the interests of insiders usually enjoy lesser, minimal or no protection against transaction avoidance. In practice this is evident in the extension of suspect periods, Footnote 17 the acceptance of certain mental elements (e.g. knowledge or intention to give preference or to defraud) Footnote 18 or a rebuttable presumption of harm caused to creditors. Footnote 19

However, the recognition of corporate groups faces significant obstacles and even resistance whenever the principle of entity separateness is at stake. A good example is the discussion about the recognition of ‘group interest’ in European company law that has taken place since the 1990s, first solely among academics Footnote 20 and then under the EC Consultation on the Future of European Company Law launched in 2012. The latter resulted in the Company Law Action Plan, which included an initiative to recognize the concept of a group interest. Footnote 21 Despite the generally positive attitude of scholars and the business community on the EU-wide move towards the acceptance of ‘group interest’, Footnote 22 this initiative has not led to any legislative proposals, highlighting its complex and controversial character. The idea of a comprehensive legal EU framework covering groups of companies was also met with caution.

2.2 From a Single Entity to a Single Enterprise

The single entity approach relies on the principle of legal separability or entity separateness. Thus, insolvency estates and pools of creditors of legal entities are separated. On the one hand, this limits the risks attached to a failure of a single company, since creditors of one debtor do not automatically become creditors of all other group members. In theory this allows for better risk calculation, since it is easier to evaluate a borrower’s creditworthiness. Footnote 23 On the other hand, the economic interconnectedness of group companies, as well as various intragroup liability arrangements (e.g. intragroup loans, cross-guarantees, cross-default provisions and cross-entity ipso facto clauses) highlight the unsophistication of this approach and could make it less appealing. Footnote 24 To remedy these deficiencies, the enterprise approach has been suggested. This approach treats the group as a single economic unit that operates to further the interests of the group as a whole. Footnote 25 The enterprise approach is visible in a variety of rules and techniques, from less intrusive (e.g. communication and cooperation between insolvent group members) to the ultimate disregard of entity boundaries (i.e. substantive consolidation). Footnote 26

Recent years have witnessed the rise of important initiatives and the emergence of new legal instruments that modernize insolvency law to ensure an effective and efficient administration of cross-border insolvency proceedings in the context of groups of companies. Among such instruments are the BRRD (2014), the EIR Recast (2015), and the UNCITRAL Model Law on Enterprise Group Insolvency (2019). The BRRD, the EIR Recast and the Model Law 2019 recognize the specificity of corporate groups, give a definition of a group of companies Footnote 27 and offer (and sometimes mandate) special mechanisms and tools to address the challenges of enterprise group insolvencies.

A number of national legal regimes also contain regulations on enterprise group insolvency. For example, Germany reformed its insolvency law in 2017 to facilitate the efficient administration of insolvency proceedings through enhanced coordination. This is achieved by means of the concentration of insolvency proceedings in one court, the appointment of the same insolvency practitioner in separate insolvency proceedings and the opening of special group coordination proceedings ( Koordinationsverfahren ). Footnote 28 France, Italy, Belgium and Spain have adapted their general insolvency rules to provide for the joint commencement of proceedings in cases of enterprise groups. Footnote 29 The English schemes of arrangement are frequently used to restructure debts of various group members at the same time, giving effect to a group-wide solution. Footnote 30 This is particularly evident from the sweeping approval by the English courts of so-called third-party releases, which lead to a release (i.e. a total or partial discharge or amendment) of claims against third parties, such as co-obligors, guarantors and collateral providers (typically, group members) in the proceeding concerning the principal debtor. Footnote 31 In the case of Syncreon Group BV , the court noted that such releases were necessary ‘in order to give full effect to the schemes’ and that they were ‘a relatively regular feature of the schemes’. Footnote 32

The new generation of legal instruments mentioned above recognises the need to adjust traditional tools of insolvency law to the characteristics and business reality of corporate groups. However, the extent of such recognition and its boundaries are not entirely clear.

3 The Rise of ‘Group Solution’ in Insolvency Law

3.1 group solution and asset value maximization.

The EIR Recast establishes that cooperation in the context of enterprise group insolvency ‘should be aimed at finding a solution that would leverage synergies across the group’. Footnote 33 In a like manner, the Model Law 2019 aims to provide effective mechanisms to address cases of the insolvency of groups of companies through facilitation of the development of group insolvency solutions for the whole or part of an enterprise group. Footnote 34 A group insolvency solution is defined as:

A proposal or set of proposals developed […] for the reorganization, sale or liquidation of some or all of the assets and operations of one or more enterprise group members, with the goal of protecting, preserving, realizing or enhancing the overall combined value of those enterprise group members. Footnote 35

As explained in the Guide to Enactment of the Model Law 2019, a group insolvency solution is a new term, which is intended to be flexible. Footnote 36 This flexibility is needed to take into account the circumstances of a specific enterprise group, its corporate and financial structure, business model, as well as the degree of integration between different group members.

For integrated groups of companies, a group solution often entails the preservation of going concern value, which requires the prevention of group disintegration upon insolvency. Imagine the following (rather typical) scenario. A complex corporate group consists of a number of entities playing different roles: a company issuing debt instruments and lending the received funds to other group members (FinCo); a company managing and owning assets essential for the group’s business, including intellectual property, licences, know how, real estate (SPV); a company exercising managerial control over the group and acting as a group treasury as a result of a centralized cash management system (HoldCo); and a number of operational companies offering services or manufacturing products (OpCos). Administering such companies separately in insolvency can be difficult and suboptimal in terms of maximizing insolvency estate value, as the strict entity-by-entity treatment may lead to a breakup of intra-group links and a denial of access to vital resources and lifelines.

A good example is the Lehman Brothers group. When the holding company Lehman Brothers Holdings Inc. (LBHI) filed for Chapter 11 on 15 September 2008, many of its subsidiaries lost access to valuable sources of finance and information. Footnote 37 The corporate legal shields, separating legal entities in the group, did not stop their failure. At least one of the reasons was that behind these shields, the entities were tied together in the web of debt and cross-guarantees. They depended on each other for the provision of financing, debt refinancing and services. For instance, the information on accounts and trades related to several group entities was frequently concentrated in one jurisdiction. Thus, Lehman Brothers International (Europe) (LBIE), the UK subsidiary of LBHI, recorded information on financial notes relevant to other group members, including its Dutch subsidiary, Lehman Brothers Treasury Co B.V. When the latter became insolvent in the Netherlands, the court needed such information to make asset distribution in the Dutch proceedings, as it was not readily available. Footnote 38 A similar situation can arise if in insolvency entities lose their access to vital assets held by other entities in the group, including patents, licences, customer databases, real estate and raw materials. As a result, the operational activity of the group might be paralyzed, and group entities may end up in a piecemeal liquidation.

A group solution envisaged in the EIR Recast and the Model Law 2019 aims at preserving and maximizing the value of the insolvency estate for the benefit of creditors. It may also promote financial restructuring and rescue ailing companies or corporate groups. However, business rescue is usually incidental or subordinate to the goal of asset value maximization. In practice a group solution can be facilitated by the application of various tools. Among them (in the order of the rising coordination effect) are:

Cooperation and communication between parallel insolvency proceedings. Importantly, the EIR Recast and the Model Law 2019 establish that insolvency practitioners and courts shall cooperate and communicate with each other to the maximum extent possible. Footnote 39

The conclusion of cross-border insolvency agreements or protocols. Footnote 40 While the exact legal nature of insolvency protocols is not entirely clear (e.g. when it comes to their binding or non-binding character), since the 1990s they have played an increasingly important role in streamlining the administration of complex and large-scale cross-border insolvency cases. For example, they were used in such well-known cases as Lehman Brothers, Nortel Networks and Bernard Madoff Investment Securities. More recent examples of insolvency protocols concern airline insolvencies (e.g. Jet Airways, LATAM).

The opening of special sui generis proceedings (i.e. group coordination proceedings under the EIR Recast and planning proceedings under the Model Law 2019). Footnote 41 These special proceedings aim at improving coordination and simplifying information flows between parallel court proceedings, ultimately encouraging the development and implementation of a group insolvency solution.

The appointment of the same insolvency practitioner in separate insolvency proceedings of group members. Footnote 42 Such appointment greatly diminishes coordination problems, reduces transaction costs and may stimulate the preparation of a group‐wide strategy, including business rescue and the sale of an enterprise as a going concern.

3.2 Limits of a Group Insolvency Solution in Corporate Insolvency Law

The optimal realization of the debtor’s assets is assessed on an entity-by-entity basis, as in the absence of substantive consolidation, the separateness of the asset pools of group entities is preserved. Any relation—by shareholding or otherwise—to another legal entity within a group usually becomes irrelevant. The well-known and widely used ‘best interests of creditors’ test (or the ‘no creditor worse off’ principle—NCWO principle), Footnote 43 which allows creditors to veto the confirmation of a plan if they would receive less individually than in an alternative (typically, liquidation) scenario, is applied on the level of each separate company.

The ‘best interests of creditors’ test sets out a reference point or a minimum baseline, which shields individual creditors, guarantees fairness and ensures the protection of property rights. Footnote 44 Thus, if a group reorganization plan or another group solution guarantees group survival and maximizes the value of the group as a whole (net group value) but harms the interests of creditors of a group member, such a plan cannot be confirmed, unless the affected creditors consent to it. In other words, as a general rule, the interests of a group or the majority of creditors cannot trump the interests of individual creditors. Footnote 45 This limitation is also evident in the restrictions imposed on cross-border communication and cooperation, and the appointment of the same insolvency practitioner, discussed below.

The EIR Recast prescribes that in a group insolvency context courts and insolvency practitioners shall communicate and cooperate to the extent that it does not entail any conflict of interest . Footnote 46 Such conflicts may arise in a situation of a dispute between group members and concern the enforcement of intra-group claims, transaction avoidance actions and the allocation or transfer of assets within the group. Footnote 47 Moss and Smith note that whenever there is a disputed claim between two group entities, an obligation for insolvency practitioners to cooperate may ‘need to be circumscribed accordingly’. Footnote 48 Schmidt provides another example of a conflict, when cooperation entails (gratuitous) ‘transmission of valuable know-how, patents, or business secrets, or making assets available to other group members which could have been disposed of with a large profit for the individual group member’. Footnote 49 Conflicts of interest are magnified where the same insolvency practitioner is appointed to administer several members of an enterprise group with complex financial and business relationships and different groups of creditors. Footnote 50 Taking into account the prominence of such conflicts, Van Galen writes that ‘[i]t is remarkable that there are many domestic cases in which the same liquidator is appointed in the insolvency proceedings of more than one group company’. Footnote 51

The main idea behind restricting communication and cooperation or the appointment of a single insolvency practitioner in a situation of a conflict of interest is to minimize the potential harm that may otherwise be caused to the interests of individual group members (and their creditors), which maintain their separate legal identity. The restrictions are imposed to avoid the impairment of the value of one entity’s insolvency estate to the benefit of another group entity’s insolvency estate or the combined net group value. Footnote 52

In sum, a group solution under the EIR Recast and the Model Law 2019 is a flexible concept that seeks to preserve group synergies and to safeguard and maximize the insolvency estate value to the advantage of creditors. It tries to solve the collective action problem triggered in insolvency by imposing group-level regulation and decision-making, aligning the economic self-interest of creditors with the goals of collective action on a group level and reducing cooperation costs and information asymmetries between separate proceedings. Footnote 53 The achievement of a group solution may be facilitated by various legal tools, ranging from the simple exchange of information between insolvency practitioners and courts to the opening of special proceedings. The outer limits of a group solution are ultimately drawn up by the boundaries of a corporate form and the separateness of insolvency estates and pools of creditors, safeguarding creditors’ property rights and pre-insolvency entitlements.

4 Group Solution and Group Resolvability in Bank Resolution

4.1 goals of bank resolution.

The global financial crisis of 2008 (GFC) revealed the inadequacy of the then existing rules for the resolution of international (cross-border) credit institutions. The Basel Committee on Banking Supervision (BCBS) concluded in its report from 2010 that the ‘[e]xisting legal and regulatory arrangements are not generally designed to resolve problems in a financial group operating through multiple, separate legal entities’. Footnote 54 This has resulted in the ‘predominance of the territorial approach in resolving banking crises and insolvencies’. Footnote 55 A good example of this approach to the insolvency of a banking group is the case of Icelandic banks. Following the crisis of its outsized banking system in the autumn of 2008, the Icelandic government passed emergency legislation that granted protection to domestic deposits, which had been transferred to ‘new banks’, while foreign operations remained with the ‘old banks’, which were put into administration. Ultimately, foreign depositors received no support and had to be rescued by foreign (i.e. the UK and the Dutch) governments. Footnote 56

The BRRD takes a different approach. It recognizes that the insolvency of a group entity can rapidly impact the financial soundness of the whole group Footnote 57 and spread the contagion across the financial system, potentially causing a systemic crisis. Footnote 58 As a result, various rules targeting banking groups and their resolution have been adopted in the EU, but also in non-EU countries (e.g. the USA).

The BRRD does not use the term ‘group solution’. Instead, it is concerned with and seeks to ensure group resolvability. Group resolvability means that a banking group should be allowed to fail in an orderly manner, without significant adverse consequences for the financial systems of the EU Member States in which group entities or branches are located, including broader financial instability or system-wide events, with a view to ensuring the continuity of critical functions carried out by those group entities. Footnote 59 Thus, the focus of bank resolution is macroprudential, as it extends beyond the microprudential goal of asset value maximization and looks outside the boundaries of a single entity or an enterprise group. Footnote 60 In addition to the interests of creditors, it takes other interests into account. Bank resolution seeks to preserve the stability of the financial system and to ensure the continuity of critical financial and economic functions performed by banks for the ultimate purpose of preventing social harm and public unrest. In this respect Lubben argues that the primary aim of bank resolution is not adjudicatory (i.e. collective claim enforcement), but regulatory. Footnote 61

In light of the macroprudential purpose of bank resolution, the recognition of banking groups and a coordinated response to their financial distress appear logical, as the resolution of a single entity ignoring its interconnectedness and integration in the financial system may be short-sighted and hopelessly futile. Footnote 62 The BCBS has demonstrated that the absence of a coordinated resolution mechanism for the legal entities in banking groups and financial conglomerates means that the only alternatives are often either a disorderly collapse (which may create systemic risks and lead to other disruptive consequences) or a bail-out. Footnote 63

Group-level regulation in the context of bank supervision and bank resolution is especially evident in three spheres: (i) group recovery and resolution planning; (ii) group financial support agreements; and (iii) models of bank resolution and minimum requirements for own funds and eligible liabilities (MREL).

4.2 Group Recovery and Resolution Planning

The BRRD establishes that it should be the general rule that ‘group recovery and resolution plans are prepared for the group as a whole and identify measures in relation to a parent institution as well as all individual subsidiaries that are part of a group’. Footnote 64 The obligations for the adoption of recovery and resolution plans (colloquially referred to as ‘living wills’) have been introduced both in the USA Footnote 65 and in the EU. Footnote 66

There are several important reasons for drafting recovery and resolution plans. First, detailed and up-to-date plans provide resolution and other authorities with information, necessary for efficient monitoring, timely early intervention and the execution of resolution tools. Second, living wills play an educational and disciplining role and improve the awareness of the banks’ own management of the potential problems or weaknesses. Footnote 67 As a result, they can serve as a warning indicator and a catalyst for action to remove impediments to the resolvability of an institution or a group. This may concern, inter alia, the enhancement of the corporate and financial structure of a bank or a banking group, its lines of business and organizational division of tasks between group entities. Third, living wills can contribute to the simplification of relations and the reduction of complexity within banking groups. Footnote 68 Such complexity is common for banks and is frequently driven by extensive intra-group transactions. Footnote 69 Fourth, ex ante crisis preparation and disclosure of (some) information in living wills may ‘clarify expectations and strengthen market confidence in the resolution actions of authorities’. Footnote 70

The European Commission (EC) has adopted a regulation that specifies the content of recovery and resolution plans. Footnote 71 For instance, as regards recovery plans, it clarified that such plans should be integrated in the overall corporate governance of the group and should provide for indicators or early warning signals, which may facilitate early action to remedy the unfolding crisis situation. Footnote 72 Recovery plans also need to identify legal entities within the group in which core business lines and critical functions are located. The description of enterprise group members shall contain both the general characterization of the entities covered by the recovery plan and a detailed description of the group legal and financial structures, including intra-group exposures and funding relationships, such as intra-group guarantees, group financial support agreements and profit and loss transfer agreements. Footnote 73

Thus, recovery plans generally cover the banking group globally and reveal its corporate, operational and legal interconnectedness. In light of such interconnectedness, recovery plans must include a list of all recovery options and describe each of them. Footnote 74 Resolution plans should feature resolution strategies for each institution and group as a whole, highlight internal and external interdependencies which are critical to the maintenance of operational continuity, and outline the financing requirements and financing sources necessary for the implementation of the resolution strategy foreseen in the plan. Footnote 75

4.3 Group Financial Support Agreements

Intra-group financing between banking group members (between the parent and its foreign subsidiaries) constitutes a significant source of funds for cross-border operations. Footnote 76 At the same time, financial distress may disturb the free flow of capital within banking groups, thereby impacting the financial soundness of the group and its constituent members. The BRRD acknowledges that the provision of financial support and assistance from one entity of a cross-border banking group to another entity in the same group may be restricted in a situation of financial distress. Footnote 77 Such restrictions are usually designed to protect creditors and shareholders of each entity in the group. During the GFC, in order to protect domestic stakeholders many jurisdictions imposed or tightened restrictions on intra-group cross-border money transfers, limiting the ability of banking groups to optimally allocate liquidity. Footnote 78

To address this problem, the BRRD has introduced a special regulatory regime, called a ‘group financial support agreement’, as a way to cope with the financial distress of subsidiaries in the recovery phase. Footnote 79 The purpose of this regime is to ensure the predictability of flows of resources at different levels of a cross-border group in distress, to discourage local ring-fencing practices and to achieve the financial stability of a banking group without jeopardising the liquidity or solvency of entities extending financial support. Transactions falling under the protective regime of such agreements should be safeguarded from any legal impediments in national law, Footnote 80 such as transaction avoidance rules. Footnote 81

The EC has referred to a group support agreement as a ‘pre-emptive transaction’, highlighting that such a transaction is entered into pre-emptively and does not entail an immediate transfer of funds. It is rather a commitment or a promise to provide support, should the conditions for it be satisfied. Such support may take different forms, including the provision of a loan, a guarantee, assets to be used as collateral, or any combination of these forms of financial support. Footnote 82 It can cover one or more entities in the group and involve support from the parent undertaking to subsidiaries (downstream), from subsidiaries to the parent undertaking (upstream) and between subsidiaries of the same group (cross-stream), or a combination of these variations. Footnote 83

The macroprudential vision of bank resolution in the application of rules related to intra-group financial support materializes in the concept of a ‘group interest’. This is an innovation of the BRRD, which goes beyond a single-entity vision traditionally adopted in insolvency law. Under the BRRD, when approving the support agreement and the actual provision of financial support, competent authorities should analyse and compare the direct and indirect benefits for the group as a whole, which may result from rescuing an ailing group member. They should consider the potential risks for the group and the providing entity, created by the default and insolvency of the receiving entity. The group interest is also relevant for calculating the direct and indirect benefits for the grantor of financial support, arising from the restoration of the financial soundness of the receiving entity (i.e. group interest furthers entity interest). The European Banking Authority (EBA) accepts that such benefits might be difficult to quantify, for instance, when it comes to saving the reputation of the group. Footnote 84

4.4 Models of Bank Resolution and MREL

To ensure the internalization of losses in case of a bank failure and to prevent public bailouts, the BRRD has established rules on MREL. MREL should guarantee sufficient loss-absorbing and recapitalization capacity available in resolution, so that the costs of failure are borne by the bank’s investors, i.e. shareholders and creditors, instead of depositors or taxpayers. The internalization of losses is an essential pillar of the modern bank resolution framework. The requirement for global systemically important banks (G-SIBs) to have certain levels of loss absorption (i.e. bail-inable liabilities) has also been developed by the Financial Stability Board (FSB) and envisaged in the total loss absorbing capacity (TLAC). Footnote 85

MREL and TLAC are closely tied to two main models or strategies of bank resolution: a single point of entry model (SPOE) and a multiple point of entry model (MPOE). Footnote 86 The realization of these models requires a pre-positioning of the liabilities within the group. Footnote 87 Under SPOE, resolution is undertaken at the level of a holding company placed at the top of the banking group (or sub-group). Footnote 88 This strategy helps to avoid resolution actions and disruption at the level of group operating entities. In contrast, MPOE entails intervention by multiple resolution authorities and the application of resolution measures at the level of various operating companies or subsidiaries. Footnote 89

In line with the TLAC standard, the BRRD recognizes both SPOE and MPOE resolution strategies. It also acknowledges the group reality Footnote 90 and the need to ensure that loss-absorbing capacity is distributed across the banking group in accordance with the level of risk in its constituent group members and with reference to recovery and resolution plans. Footnote 91 This may be done through the allocation of internal loss absorption and recapitalisation by upstreaming the losses from the subsidiaries to the ‘resolution entities’ (i.e. group entities to which resolution actions could be applied and to which rules on ‘external MREL’ apply). Footnote 92 Such entities together with their subsidiaries comprise ‘resolution groups’. The group-internal distribution of MREL resources (referred to as ‘internal MREL’) should allow conversion and write down of debt without subsidiaries (non-resolution entities) themselves entering into resolution. Thus, financial distress is addressed at the group (or the sub-group) level rather than at an individual entity level.

Internal MREL and the concepts of ‘resolution entity’ and ‘resolution group’ are recent inventions and have been introduced in the EU by the so-called ‘banking package’, which, inter alia, includes the BRRD2. Footnote 93 This new instrument requires resolution authorities to identity the resolution entities and resolution groups within banking groups and to appropriately consider the implications of any planned action within the group to ensure effective group resolution. Footnote 94

4.5 Limits of Group Resolvability

It is clear that the EU bank resolution regime recognizes that banks often operate as integrated and complex cross-border groups of companies. Therefore, it adjusts its approach to address group financial distress, inter alia, by way of the special tools discussed above (i.e. group recovery and resolution planning, group financial support agreements and models of bank resolution). This group-mindful regulation is much more comprehensive and developed compared to the rules applicable in the insolvency of non-financial companies, which mostly boil down to enhanced cooperation, communication and coordination. This divergence may stem from the specific policy goals pursued by (or the system of the values underlying) bank resolution. Unlike microprudential insolvency law with its primary focus on asset value maximization, bank resolution is concerned with the preservation of banks’ critical functions and national, regional and global financial stability. This macroprudential policy mandates the departure from a narrow entity-by-entity and territorial approach. Nevertheless, the extent of such a departure should not be overstated.

On closer examination, we can observe that the essence of entity separateness is diligently preserved in bank resolution.

First, the BRRD does not permit the application of resolution tools to a banking group as a whole, as if it is a single entity. Instead, resolution tools can only be applied at the level of separate group members (parent or subsidiary companies). Footnote 95 This is without prejudice to the assessment of group resolvability. According to Article 2(1)(42) BRRD, ‘group resolution’ is comprised of either (i) the taking of resolution action at the level of a parent undertaking or of an institution subject to consolidated supervision (i.e. SPOE) with a view to resolving the whole or a part of the group, or (ii) the coordination of the application of resolution tools and the exercise of resolution powers by resolution authorities in relation to group entities that meet the conditions for resolution (i.e. MPOE).

Second, the NCWO principle remains the fundamental principle governing the protection of creditors’ rights in bank resolution. Footnote 96 It guarantees that no creditor or shareholder shall incur greater losses in the course of the resolution action than it would have incurred if the bank had been wound up under normal insolvency proceedings. Footnote 97 This principle is applied separately for each group entity. Thus, a resolution tool cannot be used if it worsens the position of a creditor compared to its position in a situation of normal insolvency proceedings, even if the resolution is in the public interest and increases the combined net value of the banking group.

The BRRD takes the national order of the priority of claims as a baseline, subject to the special rules, leading to a possible deviation from the national order of priorities. Footnote 98 Thus, the reference point for comparison is national insolvency law. In the absence of a harmonized regime of insolvency laws, the NCWO principle would result in different outcomes across the EU in case of the resolution of a cross-border group. Should insolvency law provide for specific treatment for groups of companies (e.g. recognizing the existence of a group interest or providing for subordination of intragroup claims), this may affect the outcome of the NCWO assessment. Footnote 99 Nevertheless, at this moment the vast majority of the EU Member States have not adopted tailored legislation addressing the insolvency of groups of companies or recognizing the group interest.

Third, the concept of a group interest evident in the application of the rules concerning group financial support agreements has serious limits. For example, the BRRD establishes that such agreements may not compromise the liquidity or solvency of providing entities as a result of granting rescue financing. Footnote 100 In other words, the group interest should not trump the interests of individual group entities and their respective creditors. Besides, it appears that the BRRD does not introduce an overarching concept of a group interest, applicable across its provisions. Instead, a group interest surfaces only in the context of intra-group financial support. Footnote 101

In sum, by a group solution in bank resolution, we may understand group resolvability. Unlike insolvency law, almost exclusively focused on optimal realisation of the debtor’s assets, bank resolution seeks to ensure a continuation of the critical functions of financial institutions and the preservation of financial stability. This macroprudential goal dictates the adoption of special group-mindful strategies and tools at the pre- and post-crisis stages. Among such tools are group recovery and resolution planning, group financial support agreements, pre-positioning of bail-inable liabilities and the realisation of SPOE or MPOE resolution strategies. Footnote 102 Despite the macroprudential focus of bank resolution, the core of entity separateness remains untouched. This is evident in the entity-by-entity application of resolution tools and the NCWO principle, which may be considered an obstacle to a truly global group-wide bank resolution.

5 Substantive Consolidation: An Ultimate Group Solution?

The previous sections described various approaches and strategies in dealing with corporate groups in financial distress. While signalling important developments towards the recognition of enterprise groups and addressing their peculiarities, they also embrace one key limitation. Group solutions proposed by the BRRD, EIR Recast, the Model Law 2019 and the national legal regimes respect entity separateness as a ground rule. Thus, the values underlying such instruments (i.e. the preservation of financial stability and estate value maximization respectively) do not outweigh the value of entity shielding that protects parties’ legitimate expectations, simplifies risk calculation and safeguards creditors’ property entitlements against specific legal entities. Footnote 103 However, there is one important but rarely applied exception—the case of substantive consolidation.

Substantive consolidation leads to a pooling of assets and liabilities of several companies together, as if these companies constitute a single legal entity. As a result, the insolvency process becomes more simplified and cost-efficient, since there is only one procedure, one court, one insolvency estate and one insolvency practitioner. Substantive consolidation also eliminates cross-liability (e.g. intercompany contracts, group guarantees, joint liability, intercompany avoidance actions) for the simple reason that the separateness of legal entities and insolvency estates disappears. This makes intra-group litigation, which may last for years and consume large resources, unnecessary.

As efficient as it may be, substantive consolidation is not available in the majority of the EU Member States. Footnote 104 The EIR Recast explicitly prohibits group coordination plans from including recommendations as to any consolidation of proceedings or insolvency estates. Footnote 105 In those few jurisdictions where substantive consolidation is permitted, its application remains limited. It is typically restricted to cases of the intermingling of assets and liabilities within an enterprise group to a degree that ascertaining their actual ownership involves disproportionate expense or delay, or to cases of fraud and abuse of corporate form. For example, according to French law, the ‘commenced proceedings may be extended to one or more other persons where their assets are intermingled with those of the debtor or where the legal entity is a sham’. Footnote 106 In a similar vein, Spanish law exceptionally allows substantive consolidation ‘when there is confusion of assets and it is not possible to separate the ownership of assets and liabilities without incurring an unjustified expense or delay’. Footnote 107

Substantive consolidation is also possible in the USA but remains rare. Footnote 108 The Federal Rules of Bankruptcy Procedure regulate consolidation or joint administration of cases against a debtor and an affiliate. Footnote 109 However, this consolidation is procedural—insolvency cases of multiple debtors are routinely jointly administered by the US courts. Footnote 110 Substantive consolidation is not distinctly authorized in the Bankruptcy Code and the majority of courts have based their decision to substantively consolidate on 11 U.S. Code §105, which provides that a court ‘may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions’ of the Bankruptcy Code.

The power to order substantive consolidation was recognized by the US Supreme Court even before the enactment of the modern Bankruptcy Code as an equitable power. Footnote 111 Different standards have since been employed by the courts. Footnote 112 In assessing whether to authorize substantive consolidation they have taken into account: (i) whether creditors dealt with group entities as a single economic unit and did not rely on their separate identity; (ii) whether the affairs of the debtors are so entangled that consolidation will benefit all creditors; Footnote 113 (iii) whether consolidation is necessary to avoid some harm or to realize some benefit; (iv) whether the demonstrated benefit of consolidation heavily outweigh the harm; Footnote 114 (v) whether the assets and liabilities of the group entities are so scrambled that separating them is prohibitive and adversely affects all creditors. Footnote 115

The extreme caution with which substantive consolidation is applied is premised on the fact that it affects the distribution between creditors, as creditors of a single debtor are forced to share the estate value with creditors of all consolidated entities. In the end, some creditors inevitably benefit at the expense of others. In other words, substantive consolidation leads to imposed wealth redistribution, profoundly affecting creditors’ (property) rights and recoveries. This is why the considerations of mere convenience or the maximization of the combined group insolvency estate are not sufficient to call substantive consolidation into play.

Disentangling the core value or the sole rationale underlying substantive consolidation is not easy, primarily because of the lack of a coherent theoretical framework and the variety of approaches taken in different jurisdictions (or even within a single jurisdiction, as is the case in the USA). On a very general level, substantive consolidation may be viewed as a consequence of the disregard or abuse of a corporate form. Footnote 116 In such a context the boundaries between legal entities in the group become blurred and the group is perceived as a single economic and organizational unit—a consolidated legal entity.

If this is the case, we may inquire whether substantive consolidation can at all be regarded as a group solution. This is because such consolidation leads to the dissolution of the group or the death of the robust legal entity, which serves as a basis underpinning all other solutions explained above. It eliminates corporate boundaries and replaces a group as a system or a network of connected but distinct legal entities with a consolidated surviving entity. Can there be a group solution without a group? The answer should most likely be in the negative, at least to the extent that the legal separability is disregarded. From an economic perspective, the unity of an enterprise remains.

6 Group Solution: Economic Rationale and Creditors’ Interests

6.1 pareto efficiency v. kaldor-hicks efficiency.

The previous sections have described the growing acceptance of the need to take a group environment into account when dealing with enterprise group insolvency. It was also stressed that despite the variety of tools to realize a group solution, one common feature restricting its scope is the protection of creditors of individual groups members. Both insolvency law and bank resolution establish the minimum safety net afforded to such creditors. This is particularly evident in the operation of the NCWO principle, limitations on communication and cooperation between insolvency practitioners and courts in a group insolvency context, restrictions related to the appointment of a single insolvency practitioner to administer several members of an enterprise group, and separateness in the application of the resolution tools.

Economically speaking, a group solution pursues a Pareto-efficient or Pareto-optimal solution to the extent that at least one party benefits from such a solution and nobody is made worse off. Footnote 117 According to Morrison and Anderson, in insolvency the concept of Pareto efficiency is manifest ‘where an insolvency decision or choice produces a greater return to some creditors without reducing the return to any other creditor’. Footnote 118 In a group insolvency context, Pareto efficiency can, for instance, be achieved by producing greater returns to (some) creditors, ensuring the survival of group entities (and thus, preserving employment), safeguarding financial stability and banks’ critical functions and reaching other substantive goals, without at the same time damaging the interests of (non-consenting) creditors, whose position is compared to a baseline scenario (i.e. a no-group-solution scenario). As discussed above, this is generally done through addressing the collective action problem at the group level—we can call it a group-mindful creditors’ bargain.

In law, Pareto efficiency prevails over another type of economic efficiency—Kaldor–Hicks efficiency. Kaldor–Hicks efficiency approves an outcome that maximizes a net gain (total wealth maximization), even if potentially leaving some parties worse off. For example, Kaldor–Hicks efficiency will be reached if the aggregate returns to creditors increase, while some creditors have to suffer, provided that the benefits to those creditors who are better off exceed the losses of creditors who are worse off. This outcome is normatively unattractive since it may encroach on creditors’ property rights, pre-insolvency entitlements and legitimate expectations. Of course, those who ‘win’ could in principle and theoretically compensate those who ‘lose’, but this is not required for Kaldor–Hicks efficiency. Footnote 119

6.2 Determining ‘Better Off’ and ‘Worse Off’

The determination of the principle of economic efficiency underlying a group solution does not by itself clarify what it means for a creditor to be ‘worse off’ or ‘better off’. Clarification of these terms and their flexible and multifaceted interpretation is key to the effective implementation of group solutions and, more generally, to the proper operation of rules dealing with group insolvencies. This should start with the establishment of the ‘interest’ assigned to creditors. In my opinion, such an interest should not be limited to a myopic focus on short-term profits. Instead, a more balanced approach, comprehensively looking at the medium and long-term direct and indirect benefits of a group solution should be embraced. Admittedly, a determination of such benefits may sometimes be problematic and give rise to litigation. The discussion of the topic of creditors’ interest is reminiscent of the debates around the concept of shareholder primacy, corporate purpose and the problem of short-termism in company law. Footnote 120 This makes sense, as in insolvency creditors become residual claimants or economic owners of the company, ultimately replacing shareholders. Footnote 121

A group solution might cause some (monetary) losses to some creditors in the short term, but directly and indirectly benefit them and other stakeholders in the mid or long term, finally approaching Pareto efficiency. For instance, a group solution, even if resulting in a short-term detriment, may preserve the running enterprise and allow creditors to continue contracting and benefiting from the ongoing relationships and future income. A determination of ‘benefit’ and ‘interest’ should therefore be carried out against the background of the group reality. This approach has been embraced by UNCITRAL, the World Bank and the BRRD in the rules and recommendations concerning intra-group rescue financing.

The World Bank stipulates that the insolvency system should ‘permit an enterprise group member subject to insolvency proceedings to provide or facilitate post-commencement finance or other kind of financial assistance to other enterprises in the group which are also subject to insolvency proceedings’. Footnote 122 Similarly, UNCITRAL accepts that insolvency law should permit an enterprise group member subject to insolvency proceedings to advance post-commencement finance or grant a security interest/provide a guarantee to another enterprise group member subject to insolvency proceedings. Footnote 123 As a result, some detriment, even if only in the short term, to the interests of an individual group member and its creditors for the long-term benefit of the enterprise may be justified. Footnote 124 The same logic is adopted in the BRRD’s provisions concerning intra-group financial support agreements, as discussed above. The BRRD adheres to a nuanced approach in defining the interest of the group entity providing support to another (financially distressed) group entity. When identifying the interests of the providing entity and its creditors, it accounts for direct and indirect benefits for such an entity, including those resulting from a recovery of the group as a whole, as well as the risks that would result from the destabilisation of the group. Footnote 125

The group-sensitive and forward-looking interpretation of creditors’ interest may facilitate commercially sensible and practical group solutions, going beyond the short-term satisfaction of creditors’ basic (minimum) entitlements.

7 Group Solution as a Principle of Insolvency Law

Insolvency law has made significant progress in the last few decades. This progress has been evidenced in the increasing harmonization of private international law rules and, somewhat more modestly, in substantive insolvency law and bank resolution. The harmonization was driven by the recognition and acceptance of certain legal principles. Such principles can be defined as ‘fundamental and basic standards’ Footnote 126 or ‘meta-norms’. Footnote 127 As opposed to rules and policies, principles have a higher level of abstraction and are arguably more stable. To be accepted as a principle, a standard must be widely and lastingly recognized. Footnote 128 It can be implemented in a variety of rules, often in different areas of the law. Nevertheless, the social and economic background affects the importance assigned to or the relative weight of a legal principle, or its position in case of a conflict with another principle. Footnote 129 It may also cause new principles to appear and supplement or substitute existing ones. Thus, legal principles are not set in stone and develop over time.

The modernization of insolvency law has resulted in the appearance of various guidelines and rules for the insolvency of enterprise groups. They have been introduced or proposed at national (e.g. Germany Footnote 130 ), regional (e.g. EIR Recast and BRRD) and global (e.g. Model Law 2019, FSB’s Key Attributes) levels. The question arises whether based on these developments it is possible to contemplate that a new stand-alone principle of insolvency law—a group solution—has taken shape. Based on the analysis in the preceding sections of this article, I conclude that such a principle has not (yet) crystallized, but this may change as the group reality keeps on being recognized and acted upon by insolvency/restructuring law. This slow crystallization process may be explained by the fact that there is no single concept or understanding of a group solution. The inherent flexibility and adaptability of a group solution is both its strength and its weakness.

The main strength of a group solution is the capability to fit into the specific circumstances and broader context (e.g. properties of a corporate group, the nature of its business, characteristics of financial distress, the policy goals pursued). Footnote 131 For example, a group solution may come down to the coordination of parallel insolvency or restructuring proceedings for the purpose of preparing and executing a group reorganization plan (i.e. a combination of separate reorganization plans). It might also entail the improvement of group resolvability by mandating the adoption of group recovery and resolution plans and the application of resolution measures to resolve a failing banking group. In its application, a group solution seems to promote different policy objectives with distinct underlying values. Under the EIR Recast and the Model Law 2019, a group solution aims at maintaining group synergies and operational continuity in order to maximize the value of the overall insolvency estate. The BRRD stresses group resolvability, which is primarily concerned with preserving the systemically important activities of credit institutions and with ensuring financial stability.

At the same time, the flexibility and sometimes ambiguous character of a group solution may be its weakness and explain the frequent lack of action to address group financial distress, the variety of approaches to treating enterprise groups in insolvency and the slow process of legal harmonization in this area. It appears that a group solution does not have an independent policy goal of its own. Instead, it plays a crucial but supporting role and aims at promoting the foundational principles of insolvency law, such as the principles of the maximization of the value of a firm’s assets and recoveries by creditors, the universality of insolvency proceedings (as applied in a group context), and a predictable and efficient insolvency process. Footnote 132 It is also integral to effective bank resolution, which seeks to guarantee the continuity of critical functions (e.g. payment, clearing and settlement), to protect public funds and to avoid adverse effects on financial stability. Footnote 133

However, the importance of a group solution should not be underestimated. It can emphasize the similarities of practices utilized in different jurisdictions and legal instruments (instead of highlighting the differences) and sharpen our understanding of the principles and goals of insolvency law and bank resolution. It might also facilitate a departure from the path-dependent entity-by-entity administration of group insolvencies and the development of new harmonized tools and practices to tackle problems common to group insolvency at national, regional and global levels. A group solution and legal rules promoting it may signal a victory for economic substance and business reality over legal formalism.

8 Conclusion

The concept of a group solution is relatively new and is still developing. This article has traced the emergence of this concept and its different manifestations in various legal regimes. A group solution was caused by the recognition of the specificity of problems related to the insolvency of enterprise groups. This has not happened at once, but has resulted from the evolution of views and ideas, evident in hard and soft law instruments of the 2000s and the 2010s. Corporate groups are explicitly acknowledged in the BRRD (2014), the EIR Recast (2015) and the UNCITRAL Model Law on Enterprise Group Insolvency (2019). Special rules dealing with the insolvency of enterprise groups have also found their way into national law (e.g. Germany).

This article has explored the concept of a group solution by looking at five questions, raised in the introduction, namely: (i) what is a group solution?; (ii) which goal does a group solution seek to achieve?; (iii) how does it try to achieve it?; (iv) what are the limitations or boundaries of a group solution?; and (v) what are the strengths and weaknesses of modern approaches to a group solution?

Based on the analysis of modern legal instruments and practices in corporate insolvency and bank resolution, I have come to the conclusion that despite the gradual acceptance of the group phenomenon, a group solution has not yet formed as a coherent and well-defined legal principle with its own substance and distinct purpose. Instead, it represents a series of various approaches, tools and practices addressing problems that are characteristic of enterprise groups. On the one hand, this variability guarantees flexibility, corresponding to the diversity of organizational and financial structures of corporate groups, their varying levels of integration and managerial centralisation. On the other hand, it could hinder harmonization attempts and the development of group solutions across national borders. Further complication comes from the fact that a group solution, or to be more precise, group solutions, pursue different policy objectives underpinned by different societal values.

First, in corporate insolvency a group solution seeks to facilitate asset value maximization through active communication and cooperation, realized by way of cross-border insolvency protocols, special coordination or planning proceedings and the appointment of a single insolvency practitioner. In this respect, communication and cooperation act as a precondition for the implementation of more substantive group solutions (e.g. the development of a group reorganization plan safeguarding the operational continuity and going concern value of the business). The latter strives to solve the collective action problem at a group level and therefore prevents group disintegration or a diminution of its value over time. It attempts to create a structured bargaining process, bringing order to the otherwise complex and atomized insolvency process. Consequently, it brings down coordination and motivation costs. Footnote 134

Second, in bank resolution a group solution pursues the goal of protecting society from systemic risks and ensuring the continuity of critical services and avoiding adverse effects on financial stability. This is, for instance, achieved by means of special strategies in the field of bank resolution. Such strategies embrace a proactive and precautionary approach and include group recovery and resolution planning, group financial support agreements and the pre-positioning of liabilities within a group with a view to a particular resolution arrangement (MPOE or SPOE). It appears that a group solution and its tools in the area of bank resolution are more advanced and far-reaching compared to those adopted in corporate insolvency. This is the result of the macroprudential vision increasingly embraced in the wake of the GFC.

Third, in exceptional circumstances the disregard or the abuse of a corporate form might sanction substantive consolidation, which treats separate legal entities as if they are merged into a single entity with cumulative assets and liabilities. The doctrine of substantive consolidation is recognized in the USA, France and Spain, but its underlying rationale and the conditions for its application diverge. Strictly speaking, substantive consolidation should not be considered a group solution, because as a consequence the group of companies as a system or a network of distinct legal entities with separate pools of assets and groups of creditors ceases to exist. I claim that in the absence of a group, there can hardly be a group solution.

Group solutions proposed by various legal instruments discussed in this article have one important limitation. A group solution cannot trump the interests of individual group members and their creditors. This is based on the premise that group entities retain their separateness in insolvency and that creditors’ claims are protected by property law. This protection is realized through the operation of the NCWO principle, restrictions aimed at minimizing the risks and negative effects of conflicts of interest in group insolvency scenarios and the entity-by-entity application of resolution measures in the context of banking group resolution.

Nevertheless, various limitations, generally sought to preserve the merits of corporate separateness, should not bar Pareto-efficient group solutions, which help to achieve the goals of insolvency law and bank resolution and operationalize them to a greater extent that would ever be possible without such group solutions (i.e. the no-group-solution scenario). To make Pareto-efficient group solutions possible and realize their full potential, I have argued that it is necessary to rethink how we define creditors’ ‘interest’ and to consider both medium and long-term direct and indirect benefits for creditors, as well as a broader enterprise group and social environment, instead of solely focusing on short-term direct monetary satisfaction of creditors’ claims.

For an overview of insolvency law responses to COVID-19, see The COVID-19 Pandemic and Business Law: A Series of Posts from the Oxford Business Law Blog, Oxford Legal Studies Research Paper No. 15/2020 (April 15, 2020). See also Gurrea-Martínez ( 2020 ).

Capri ( 2020 ).

Adler ( 2018 ), p 1855.

Mevorach ( 2009 ), p 153.

Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings [2015] OJ L 141/19 (EIR Recast).

UNCITRAL Model Law on Enterprise Group Insolvency (2019) (Model Law 2019).

Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms [2014] OJ L 173/190 (BRRD).

The Model Law 1997 seeks to offer ‘effective mechanisms for dealing with cases of cross-border insolvency’ and as of June 2021 has been adopted in 49 States in a total of 53 jurisdictions.

Directive 2001/24/EC of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding up of credit institutions [2001] OJ L 125.

Council Regulation (EC) No. 1346/2000 on insolvency proceedings [2000] OJ L 160/1. The Virgos–Schmit Report (1996), supplementing the European Insolvency Convention (1995), the predecessor of the original European Insolvency Regulation, directly stated that the ‘Convention offers no rule for groups of affiliated companies (parent-subsidiary schemes)’.

UNCITRAL Working Group V, Thirty-eighth session, UNCITRAL Legislative Guide on Insolvency Law, Part three: Treatment of enterprise groups in insolvency, 11 February 2010, p 3.

See Teichmann ( 2016 ), p 150, pointing out that ‘the company law of most jurisdictions is still focussed on the single legal entity and does not expressly acknowledge the fact that the corporate group may create legal challenges which are different from those of an independent company’.

Hansmann et al. ( 2006 ), p 1338 noting that ‘entity shielding is the sine qua non of the legal entity’.

Wessels and Madaus ( 2017 ), para. 697.

Hopt ( 2018 ), p 612.

Dammann ( 2019 ), p 231.

For instance, in the UK the suspect period for preference transactions is 2 years for connected persons, compared to the otherwise applicable 6-month period, see section 240, UK Insolvency Act 1986. In the USA, the preference period is extended from the usual 90 days to 1 year in case of an insider (11 U.S. Code § 547).

According to § 131(2) German Insolvency Code (InsO), a person with a close relationship to the debtor on the date of [preference] transaction (§ 138) shall be presumed to have been aware of the disadvantage to the creditors in insolvency proceedings. Under section 239(6) UK Insolvency Act 1986, a company which has given a preference to a person connected with the company ‘is presumed […] to have been influenced in deciding to give it by such a desire as is mentioned in subsection (5)’ [a desire to create an advantage for a counterparty]. In Greece, avoidance of preferences requires knowledge of the counterparty about the detrimental effects of a transaction. Such knowledge is presumed for connected persons, see Art. 44(2) Greek Bankruptcy Code. Knowledge of prejudice in related-party transactions is codified in Art. 43 Dutch Bankruptcy Act.

Art. 228 Spanish Insolvency Act.

A group of scholars, Forum Europaeum Corporate Group Law, has recommended the introduction of a modified Rozenblum doctrine at the European level. See Corporate Group Law for Europe, EBOR 2000, pp 165–264. See also Report of the High-Level Group of Company Law Experts on Model Regulatory Framework for Company Law in Europe (‘Winter Report’) (2002).

EC, Action Plan: European company law and corporate governance—a modern legal framework for more engaged shareholders and sustainable companies, COM/2012/0740 final.

Conac ( 2013 ); Winner ( 2016 ).

Posner (1976).

See Hansmann and Squire ( 2018 ), p 259, arguing that corporate partitioning does not generate the many benefits often attributed to it.

The dichotomy between a ‘single entity approach’ and an ‘enterprise approach’ has been noted in the UNCITRAL Legislative Guide on Insolvency Law, Part three (2010).

See UNCITRAL Legislative Guide on Insolvency Law, Part three, Chapter II, paras. 105–137.

For example, according to Art. 2(1)(26) BRRD, a ‘group’ means a parent undertaking and its subsidiaries. A similar definition can be found in Art. 2(13) EIR Recast. The Model Law 2019 in Art. 2(b) defines an ‘enterprise group’ as two or more enterprises that are interconnected by control or significant ownership.

Gesetz zur Erleichterung der Bewältigung von Konzerninsolvenzen, 13.04.2017, Bundesgesetzblatt Jahrgang 2017 Teil I Nr. 22, ausgegeben am 21.04.2017 , p 866.

Madaus ( 2019 ), §15.04. For the country-by-country study of approaches to company groups, see also Manóvil ( 2020 ).

A scheme of arrangement is a statutory procedure available under Part 26 (sections 895-901) of the UK Companies Act 2006. It is not considered to be an insolvency procedure, as it falls under company rather than insolvency law. Nevertheless, in practice schemes are used by companies (and corporate groups) in distress as a mechanism for financial reorganization. For recent examples, where the schemes have been employed to prevent group failures, see DTEK Energy BV, Re [2021] EWHC 1551 (Ch), citing among other factors, the evidence that if ‘the schemes are not implemented it is “highly likely” that disordered “domino” insolvencies would occur across the Group’. Re Codere Finance 2 (UK) Limited) [2020] EWHC 2683 (Ch), noting that ‘object of the Scheme is to compromise the claims of Scheme creditors against all obligors in respect of the Existing Notes, including the co-issuer (Codere Finance) and Group guarantors.’

Payne ( 2014 ), p 24. Third-party releases are also prevalent in Ireland, Singapore and Australia. In the case of In the matter of Nordic Aviation Capital Designated Activity Company [2020 No. 162 COS.], the High Court of Ireland cited with approval the judgment of the Court of Appeal in Singapore in Pathfinder Strategic Credit LP v. Empire Capital Resources PTE Ltd. [2019] SGCA 29, which held that the jurisdictional test for third-party releases should be applied ‘in a commercially sensible manner particularly where a group restructuring is concerned’. On third-party releases, read further Kokorin ( 2021a ).

In the matter of Syncreon Group BV [2019] EWHC 2412 (Ch), 2019 WL 04279919. Third-party releases are commonly approved with respect to group members of (foreign) companies. See In Re La Seda de Barcelona SA [2010] EWHC 1364 (Ch); Re Magyar Telecom BV [2013] EWHC 3800 (Ch); In the Matter of New World Resources N.V. [2014] EWHC 3143 (Ch); Re NN2 Newco Limited [2019] EWHC 1917 (Ch), holding that the ‘likely alternative to the capital restructuring which has emerged is group insolvency in multiple jurisdictions: that effectively means liquidation in one form or another because of the absence of restructuring procedures in other jurisdictions.’

EIR Recast, Recital 52.

The Model Law 2019 was approved by UNCITRAL on 15 July 2019. As of June 2021, it has not been transposed at the national level.

Model Law 2019, Art. 2(g).

Guide to Enactment of the UNCITRAL Model Law on Enterprise Group Insolvency (Guide to Model Law 2019), para. 42.

See Lehman Brothers Holdings Inc. Chapter 11 Proceedings Examiner’s Report (Valukas Report) (2010), p 1550, describing Lehman’s centralized intra-group cash pooling system. McDonald ( 2015 ), p 117, explaining the practical issues as each subsidiary was cut off from the others and LBHI, so that ‘[i]t was not possible to generate information and liquidate assets efficiently and identify ways to maximize value.’ Just how complex the situation was can be derived from the words of Lehman’s lawyer Harvey Miller, who reported that ‘[a]ll the accumulated information in Lehman’s systems totals 2000 terabytes of data, an amount that would completely fill 20,000 computers to the maximum. This vast sea of information spreads across 2700 software systems applications and is dispersed throughout ledger accounts in the numerous subsidiaries […]. The financial information must be retrieved […] and collated and cross-referenced for accuracy and consistency.’ See Testimony of Harvey R. Miller before the Subcommittee on Commercial and Administrative Law of the House of Representatives Committee of the Judiciary, 111th Congress, 1st Session for Hearings on ‘Too Big to Fail: The Role of Bankruptcy and Antitrust Law in Financial Regulatory Reform’, 22 October 2009.

Kirshner ( 2018 ), p 5, noting that uncoordinated insolvency proceedings faced the problem of separating intercompany arrangements, representing an elaborate system of cross-collateralization and intercompany guarantees.

EIR Recast, Arts. 56-58; Model Law 2019, Arts. 9, 14.

EIR Recast, Art. 56; Model Law 2019, Art. 16. On cross-border insolvency protocols, see Kokorin and Wessels ( 2021 ).

For a discussion and comparison of these proceedings, see Mevorach ( 2019 ).

EIR Recast, Recital 53; Model Law 2019, Art. 17.

11 U.S. Code § 1129(a)(7). On the US origins of this principle, see Tabb ( 1995 ). Since then, the ‘best interests of creditors’ test has entered into the national laws of many European countries. See e.g. § 251(1) InsO (Germany), Arts. 153(2)(1), 272(2)(1) and 338(2) Dutch Bankruptcy Act. This test is also mandated by Directive (EU) 2019/1023 of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt [2019] OJ L 172/18 (Restructuring Directive). Under the latter, satisfying the ‘best-interest-of-creditors should be considered to mean that no dissenting creditor is worse off under a restructuring plan than it would be either in the case of liquidation, whether piecemeal liquidation or sale of the business as a going concern, or in the event of the next-best-alternative scenario if the restructuring plan were not to be confirmed’. See Recital 52, Arts. 1(6), 10(2)(d). Read further Wessels and Madaus ( 2020 ), pp 288–289. See also Krohn ( 2021 ).

Madaus ( 2018 ), p 638.

See also UNCITRAL Legislative Guide on Insolvency Law, Part four: Directors’ obligations in the period approaching insolvency (including in enterprise groups) (2019), Section two, para. 8, noting that typically ‘collective benefit is not a sufficient justification by itself for acts judged to be prejudicial to creditors’.

EIR Recast, Arts. 56-58.

See UNCITRAL Legislative Guide, Part three, Chapter II, para. 68, referring to a situation of intra-group rescue financing where a ‘conflict of interest might arise, for example, in balancing the interests of the group as a whole against the potentially different interests of the lender and the receiver of post-commencement finance’.

Moss and Smith ( 2016 ), para. 8.754.

Schmidt ( 2016 ), para. 56.22.

Guide to Model Law 2019, para. 103.

Van Galen ( 2012 ), p 36. He also points out that ‘conflicts of interests between individual group companies may be much more pronounced in insolvency proceedings’.

On the issue of conflicts of interest and the procedural coordination of group insolvencies, see Kokorin ( 2020a ).

For a description of the collective action problem, see Jackson ( 1986 ), pp 16-17, viewing the role of insolvency law as one of ‘ameliorating a common pool problem created by a system of individual creditor remedies’.

BCBS, Report and Recommendations of the Cross-border Bank Resolution Group (March 2010), p 25.

Ibid., p 4.

For discussion of this and other cases of poor cross-border cooperation in banking crises, see Schoenmaker ( 2013 ), Ch. 4.2. See also Baudino et al. ( 2020 ).

BRRD, Recital 11.

BRRD, Art. 2(30), defining ‘systemic crisis’ as ‘a disruption in the financial system with the potential to have serious negative consequences for the internal market and the real economy’.

BRRD, Art. 16.

On the distinction between micro- and macro-prudential functions of insolvency law and bank resolution, see Kokorin ( 2021b ).

Lubben ( 2018 ), p 1396.

Ringe and Patel ( 2019 ), explaining why the application of bail-in resolution powers, disregarding the growing interconnectedness of European banks, may actually further systemic risk.

BCBS, Report and Recommendations of the Cross-border Bank Resolution Group (March 2010), p 24.

BRRD, Recital 33.

Dodd-Frank Act, section 165(d). The US legislation does not separate recovery and resolution planning.

BRRD, Arts. 5 and 10. Under the BRRD, recovery plans are drawn up by the banks themselves, while resolution plans are prepared by the Single Resolution Board and national resolution authorities. In contrast, under the Dodd-Frank Act, banks must draft resolution plans and submit them to the Federal Reserve Board, the Financial Stability Oversight Council and the Federal Deposit Insurance Corporation.

Ventoruzzo and Sandrelli ( 2019 ), p 20.

Avgouleas et al. ( 2013 ), p 211.

Binder ( 2014 ), p 6.

FSB, Public Disclosure on Resolution Planning and Resolvability. Discussion Paper for Public Consultation (June 3, 2019). It should be noted that in the EU recovery and resolution plans are not publicly available. However, some information therein must be revealed (e.g. general terms of group financial support agreements, see Art. 26 BRRD). In the US resolution plans consist of a private section that contains confidential supervisory and proprietary information that is not available to the public, and an open public section.

Commission Delegated Regulation (EU) 2016/1075 of 23 March 2016 supplementing Directive 2014/59/EU of the European Parliament and of the Council with regard to regulatory technical standards specifying the content of recovery plans, resolution plans and group resolution plans, the minimum criteria that the competent authority is to assess as regards recovery plans and group recovery plans, the conditions for group financial support, the requirements for independent valuers, the contractual recognition of write-down and conversion powers, the procedures and contents of notification requirements and of notice of suspension and the operational functioning of the resolution colleges [2016] OJ L 184/1.

See EBA, Guidelines on the minimum list of qualitative and quantitative recovery plan indicators, Final report, EBA-GL-2015-02 (May 6, 2015).

Commission Delegated Regulation (EU) 2016/1075, Art. 7. See also EBA, Recommendation on the coverage of entities in a group recovery plan, Final report, EBA/Rec/2017/02 (November 1, 2017).

Commission Delegated Regulation (EU) 2016/1075, Art. 8.

Ibid., Art. 22. On interlinkages between recovery and resolution plans, see EBA, Report on Interlinkages between Recovery and Resolution Planning, EBA/Rep/2020/16 (May 20, 2020).

Reinhardt and Riddiough ( 2015 ). See also De Haas and Van Lelyveld ( 2010 ), showing how multinational banks form their own internal capital markets, managing the credit growth of their subsidiaries.

BRRD, Recital 38.

Cerutti et al. ( 2010 ), p 5. See EC, Final Report, Study on the feasibility of reducing obstacles to the transfer of assets within a cross border banking group during a financial crisis (2010).

For a discussion of group financial support agreements, see Kokorin ( 2020b ). See also Gardella et al. ( 2020 ), acknowledging the utility of intra-group financial support agreements (calling them ‘one of the most important existing legal/regulatory devices to govern home and host authorities’ diverging interests and prerogatives in cases of financial distress’), but criticizing the excessive rigidity of their regulation.

BRRD, Art. 19(4).

Subordination rules, found in some national insolvency laws, can also be treated as ‘legal impediments’ in the meaning of Art. 19(4) BRRD.

BRRD, Art. 19(5)(b).

BRRD, Art. 19(5)(a).

EBA, Guidelines specifying the conditions for group financial support under Art. 23 of Directive 2014/59/EU, 9 July 2015, EBA/GL/2015/17.

FSB, Principles on Loss-absorbing and Recapitalisation Capacity of G-SIBs in Resolution. Total Loss-absorbing Capacity (TLAC) Term Sheet (2015).

Davies ( 2015 ), p 262, distinguishing between ‘multiple point of entry without coordination’ and ‘multiple point of entry with a high level of coordination’. See also Bolton and Oehmke ( 2019 ), p 2415, highlighting the need for complementarity between a bank resolution strategy and the structure of global banks.

On the pros and cons of pre-positioning, see Quarles ( 2019 ).

SPOE strategy is adopted by JPMorgan Chase, see JPMorgan Chase, Resolution Plan Public Filing (2019). This resolution plan notes that SPOE strategy ‘would limit the destabilizing effects of a possible failure by avoiding bankruptcy for the firm’s subsidiaries’.

MPOE strategy is embraced by Banco Santander SA, see Banco Santander SA, Resolution Plan for U.S. Operations: Public section (December 31, 2018). The Resolution Plan states that ‘the Group’s organizational structure permits clear and precise distinction between the main business units. It also makes it possible to separate particular units from the rest of the Group if the intention were to dispose of any particular unit or should it be necessary to isolate any unit in the case of a resolution scenario’. This structure, according to the resolution plan, ‘makes the “multiple points of entry” the most appropriate resolution strategy for the Santander Group’.

Some may argue that a MPOE resolution strategy does not represent a group solution, since the banking group is resolved entity-by-entity, through individual resolution of each institution within the group. However, MPOE strategy may be designed to better reflect the organizational, financial, geographical and strategic characteristics of a particular banking group. For example, in its resolution plan, HSBC Group states that its resolution is ‘facilitated by the separability embedded within the structure of the HSBC Group’. As a result, the preferred resolution strategy is based on the ‘resolution and restructuring of regional or national groups of affiliated companies’. HSBC Holdings Plc, SIFI Plan, Section I—Public Section (2018).

BRRD, Recital 80.

External MREL refers to debt instruments issued by a resolution entity to third parties. In case of a bail-in, these third parties will suffer losses. In contrast, internal MREL instruments are issued by group entities that are not themselves resolution entities. Such instruments are issued to a group resolution entity.

Directive (EU) 2019/879 of the European Parliament and of the Council of 20 May 2019 amending Directive 2014/59/EU as regards the loss-absorbing and recapitalisation capacity of credit institutions and investment firms and Directive 98/26/EC [2019] OJ L 150/296.

BRRD2, Recital 4.

Deslandes and Magnus ( 2018 ).

BRRD, Art. 34(1). The NCWO principle aims at protecting the right to property and preventing illegal expropriation. See De Serière and Van der Houwen ( 2016 ), p 377. See also Martino ( 2020 ), emphasizing that the policy goals of preserving financial stability and protecting property rights (i.e. by way of the NCWO rule) clearly outweigh other considerations, including the minimization of resolution costs or the avoidance of value destruction. For criticism of the NCWO principle, see Schillig ( 2020 ), p 179, asserting that the NCWO calculation is vague and essentially ex post. See also Singh ( 2020 ), pp 137–138, underscoring that the NCWO principle ‘provides a balance between the competing public and private interests’, but recognising that in a group context ‘it is likely that the [NCWO principle] will lead to different outcomes for the creditors of the different incorporated entities’.

BRRD, Arts. 73-75. A breach of the NCWO principle gives rise to the compensation claim by the relevant affected creditors and shareholders.

BRRD, Art. 108.

EBA, Single Rulebook Q&A, NCWO principle in a group resolution, Question ID 2015_2458.

BRRD, Art. 23(1)(e).

Ferran and Ho ( 2014 ), p 41.

There are other mechanisms aiming at group-mindful bank resolution. See e.g. Art. 68 BRRD, neutralizing cross-entity ipso facto clauses and Art. 88 BRRD, mandating cooperation and consultation in resolution colleges. The achievement of a group solution is also promoted by a significant level of centralisation in the decision-making within the Banking Union.

According to Posner, corporate division and limited liability aim at solving the problems of information and supervision. Instead of appraising the enterprise in its entirety, the creditors only need to look into the existing and expected assets and liabilities of a separate legal entity, which should arguably be cheaper. Posner ( 1975 ). In practice, however, the clear-cut division of an enterprise into the isolated islands of assets and liabilities does not occur. Ayotte and Hansmann note that the ‘ambiguity of entity boundaries, therefore, may in fact raise creditor-monitoring costs in large corporate groups, not lower them’. Ayotte and Hansmann ( 2013 ), p 722.

For a concise overview of European approaches, see Wessels and Madaus ( 2017 ), pp 348–349. See also Sax et al. ( 2018 ). For the criticism of the lenient approach to substantive consolidation in Brazil, see Neder Cerezetti ( 2021 ).

EIR Recast, Art. 72(3).

Art. L. 621-2 Commercial Code.

Art. 43 Spanish Insolvency Act. Notably, this provision introduces purely objective criteria, which do not consider fraudulent or abusive intentions by debtors. Read further in Naharro ( 2020 ).

Graulich ( 2006 ), p 528, emphasizing that ‘every court of appeals to consider the issue has held that substantive consolidation is an “extraordinary” remedy that should rarely be invoked’.

Fed. R. Bankr. P. 1015(b).

Levitin ( 2019 ), p 661.

Sampsell v. Imperial Paper & Color Corporation , 313 U.S. 215 (U.S. Sup. Ct. 1941).

For an overview, see Bowling ( 2010 ). Also Widen ( 2008 ).

In re Augie/Restivo Baking Co. , 860 F.2d 515 (2d Cir. 1988).

Drabkin v. Midland-Ross Corp. (In re Auto-Train Corp.) , 810 F.2d 270, 276 (D.C. Cir. 1987).

In re Owens Corning , 419 F.3d 195, Bankr. L. Rep. P 80, 343 (U.S. C.A. 3rd Cir. 2005).

See Westbrook ( 2018 ), p 36, supporting the regime that ignores the corporate form when it has been carelessly or deliberately ignored by the management of the group.

Cooter ( 1987 ), p 151.

Morrison and Anderson ( 2013 ), p 196.

Posner ( 2010 ), p 17. If such compensation is secured, the outcome could be similar to the Pareto-efficient outcome, since the detriment caused by a group solution to some creditors is remedied. This is why Kaldor-Hicks efficiency is sometimes termed the ‘potential’ Pareto efficiency.

See Bebchuk and Tallarita ( 2020 ), arguing that ‘to effectively serve the goal of enhancing long-term shareholder value, corporate leaders should take into account stakeholder effects—as they should consider any other relevant factors’. In a similar way, adopting a group solution can enhance the long-term creditor value, and simultaneously benefit other stakeholders (e.g. employees, suppliers, distributors, society, the state (tax income)).

Kraakman et al. ( 2017 ), p 117.

World Bank, Principles for Effective Insolvency and Creditor/debtor Regimes (2015), C16.2. This recommendation has been preserved in the 2021 edition of the World Bank Principles for Effective Insolvency and Creditor/Debtor Regime, see C16.2.

UNCITRAL Legislative Guide, Part three (2010), Recommendations 211-213.

UNCITRAL Legislative Guide on Insolvency Law, Part four: Directors’ obligations in the period approaching insolvency (including in enterprise groups) (2019), Section two, para. 4, noting that the ‘short and long-term implications for the interests of the different enterprise group members may need to be assessed, which may involve accepting, even if only in the short term, some detriment to the interests of individual enterprise group members in order to achieve a longer term benefit for the enterprise group to which those individual members belong.’

Bork ( 2017 ), p 13.

Pottow ( 2006 ).

See Art. 38(1)(c) of the Statute of the International Court of Justice, listing among the sources of international law ‘the general principles of law recognized by civilized nations’.

Dworkin ( 1967 ), p 27.

Recent reforms of German insolvency law have led to the establishment of domestic rules on group coordination, similar to those of the EIR Recast. As explained by the commentators, the amended law did not pursue the goal of group consolidation, but instead was a result of endeavours to promote the spirit of coordination efforts. Fridgen et al. ( 2019 ).

Mevorach ( 2013 ), pointing out the variety of remedies available in group insolvencies and accepting that this may result in incoherency and uncertainty. Mevorach calls this ‘a realism of harmonization’.

UNCITRAL, Legislative Guide on Insolvency Law, Parts one and two (2004). World Bank, Principles for Effective Insolvency and Creditor/debtor Regimes (2015).

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Kokorin, I. The Rise of ‘Group Solution’ in Insolvency Law and Bank Resolution. Eur Bus Org Law Rev 22 , 781–811 (2021). https://doi.org/10.1007/s40804-021-00220-4

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Research on Resolving Insolvency

Doing Business considers the following list of papers as relevant for research on resolving insolvency. Some papers—denoted with an asterisk (*)—use Doing Business data for their empirical analysis. If we've missed any important research, please let us know .

A study of bankruptcy costs and the allocation of control

Bankruptcy laws and debt renegotiation, bankruptcy reform and credit cards, credit, wages, and bankruptcy laws, insolvency reform for credit, entrepreneurship, and growth, legal reform and aggregate small and micro business bankruptcy rates: evidence from the 1997 belgian bankruptcy code, legal reform and loan repayment: the microeconomic impact of debt recovery tribunals in india, the costs of bankruptcy: chapter 7 liquidation versus chapter 11 reorganization, insolvency resolution and the missing high-yield bond markets, how does long-term finance affect economic volatility, cross-border alliances and risk management, the effect of business regulations on nascent and young business entrepreneurship, do reorganization costs matter for efficiency evidence from a bankruptcy reform in colombia, saving viable businesses: the effect of insolvency reform, how do bankruptcy laws affect entrepreneurship development around the world, bankruptcy laws and entrepreneur- friendliness, strategic default and equity risk across countries, the bankruptcy reform act of 2005 and entrepreneurial activity, legal reform and loan repayment: the microeconomic impact of debt recovery tribunals in india, papers on doing business topics.

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Chapter 1 deals with the concept of and approaches to ‘corporate rescue’ and examines the theoretical debate on the goals of insolvency law and corporate rescue, and how those various and sometimes competing goals could be effectively served. It further considers the advantages of the pre-pack approach in corporate rescue and questions whether this pragmatic approach to rescue is capable of accommodating different goals in corporate rescue, in the absence of an agreed working standard against which to measure these goals.

Introduction

In the modern legal regime for corporate insolvency there are two basic routes which can be followed in dealing with a company that is failing: liquidation and corporate rescue. Both provide a collective way of settling the fate of the company when the claimants cannot resolve the company’s financial troubles through private negotiations. Yet they provide two distinct paths to address the financial difficulties of a business. Liquidation serves the basic purpose of winding up an ailing company through an orderly collection and realisation of assets for the benefit of the claimants. The net value that is gathered through this collective debt collection process is then distributed among claimants according to a statutory system of priorities. On the other hand, corporate rescue procedures provide an alternative to the immediate liquidation of the ailing company, seeking to provide companies in financial difficulty with a period of respite in which compromises and rescue arrangements can be made. But, what exactly do we mean when we use the term ‘corporate rescue’? What values and purposes does it serve? How can a rescue be achieved? What conceptual, legal and practical problems arise in relation to corporate rescue?

This introductory chapter will offer a brief overview of the above issues in order to provide the contextual background to the use of ‘pre-packs’ as a corporate rescue strategy. This chapter is divided into six sections. After these introductory remarks, sections 2 and 3 provide essential definitions for the purposes of this book. Section 4 reviews theories underpinning the goals of insolvency law and corporate rescue, examining how the various and competing goals that underlie the insolvency system could be effectively served. Section 5 considers different approaches to retaining the going-concern value in businesses that are in financial distress and the unique features of pre-pack restructuring. The last section reflects on the challenges in corporate rescue, and points out what causes controversy comes from in the case of the pre-pack rescue approach.

The concept of corporate rescue

The term ‘corporate rescue’ is understood in very different ways by policy-makers, judges and scholars. These differences often stem from the divergent standpoints regarding the approaches and purposes of rescue actions in response to companies’ financial troubles. First, corporate rescue can be premised on (contractually agreed) informal mechanisms as well as on formal collective legal proceedings. Professor Belcher defined the term ‘corporate rescue’ as ‘a major intervention necessary to avert eventual failure of the company’. 1 Such a broad definition encompasses any drastic remedial action to a company at a time of corporate crisis, including both the informal and formal strategic rescue responses. 2 In contrast, a narrow definition of the term uses it to cover only the operation of legal proceedings, which offer facilitating mechanisms for rescuing financially distressed companies. Furthermore, the term may be defined differently as a way to reflect the various outcomes of rescue activities. Corporate rescue, or ‘corporate reorganisation’ in North American terminology, may be regarded as an alternative to immediate liquidation of the company, with the aim to prevent the death of the company. In the UK, the scope of rescue is wider, including both a turnaround of the company and alternatively preserving the core of a company’s business. Underlining such differences is the distinction between ‘company rescue’ and ‘business rescue’.

Company rescue works towards the restoration of a company in difficulty, which leads to the preservation of the legal entity itself so that the company can continue operations after reorganisation. In contrast, business rescue implies the termination of the old company, but the actual business and its activities will remain as a cohesive, productive unit under new ownership. This happens where a company is insolvent but successful steps are taken to retain the business as an operational enterprise, to sustain the employment of groups of workers and to ensure the survival of some economic activity. 3 Company rescue often involves changes in the management of the company and is usually achieved through reorganising methods such as refinancing, debt composition or rescheduling, downsizing activities, and making redundant part of the workforce to offer temporary relief. 4 Business rescue is commonly achieved through the sale of the company’s assets and business as a going concern, which, as commonly believed, could generate more value than assets being sold in a piecemeal fashion.

For the purposes of this book, the term ‘corporate rescue’ will refer to collective strategic rescue proceedings under a legal framework designed to facilitate either the preservation of the distressed company itself or the rescue of its underlying business by transferring it to a new owner. It should be clarified that rescue outcomes can be achieved not only through rescue-oriented proceedings but also through a liquidation procedure. As mentioned earlier, the liquidation procedure is oriented to the winding-up of the company by ceasing its operations, realising its assets and paying off its debts and liabilities. 5 In the process of realising its assets, a result that amounts to a rescue may be achieved where the company’s assets are sold in the form of a complete takeover or a bulk sale of the assets, which involves the sale of the entire business, including goodwill and other intangibles. 6 Nevertheless, despite the rescue outcomes, the liquidation procedure is not recognised as part of corporate rescue proceedings in the sense used here since its goal is different. The distinctive feature of a rescue procedure is that it is designed to capture the going-concern surplus in corporate restructurings and insolvency, in general. The going-concern surplus can be obtained if the business and assets are preserved as an operating unit, surviving either through a successful company turnaround or reorganisation, or through a going-concern sale, where the whole or substantial business and assets of the ailing company are preserved.

The surplus of going-concern value

It is commonly acknowledged that the rationale of corporate rescue is to capture the surplus of going-concern value of the assets of the ailing company, in that the value of a company’s business operations is likely to be far greater than the scrap value of its assets. 7 As has been noted: ‘[w]e have a going-concern surplus (the thing the law of corporate reorganisations exists to preserve) only to the extent that there are assets that are worth more if located within an existing firm. If all the assets can be used as well elsewhere, the firm has no value as a going concern.’ 8 The expression ‘going-concern value’ is contrasted with piecemeal liquidation value, which is referred to as the value realised when the parts of the business and assets are broken up and sold off separately. The going- concern value could be measured by estimating the income stream that the assets would generate if they were kept together, taking into account the risk of reorganisation failure and comparing it to the amount that the assets would realise if they were sold off separately. 9

But what are the sources of going-concern surplus that exceed their piecemeal liquidation value? In other words, where does the additional value come from? Traditional thinking places the source of going- concern surplus in the intangibles associated with the running of the business, such as goodwill and intellectual property. It follows that salvaging a company's going-concern value can be achieved by holding together a ‘bundle’ of intangible assets (patents, accounts receivable, customer lists and orders, etc.) and employees, and outsourcing most manufacturing activities. Nevertheless, this assertion has been challenged in the wake of the tremendous change in fundamental forces at work in the economy, brought on especially by the decline of heavy industry, technological advances, easier access to capital and credit markets, globalisation and the birth of a service-based economy. The premise of the going-concern value in the traditional sense has also been questioned by the argument that if the intangible assets are the only source of the going-concern surplus, most failed companies may be said to have no going-concern surplus, as their failure is usually due to their lack of valuable intangible assets, having neither a sound business strategy nor a good reputation. 10

The basis of the modern economy has transformed from the traditional manufacturing activity to the information-based economy, in which the most valuable resource may be human capital and relationship networks. 11 It is argued that going-concern value resides principally in various relationships ‘among people, among assets, and between peoples[sic] and assets’. 12 Costs incurred in creating most of these necessary relationships will inevitably be lost if the business is scattered to the wind through a piecemeal sale of assets, 13 and starting a business from scratch is expensive and time consuming and entails a large degree of entrepreneurial risk. 14 These points have been well made by the legal department of the International Monetary Fund:

in the modern economy, the degree to which an enterprise’s value can be maximised through liquidation of its assets has been significantly reduced. In circumstances where the value of a company is increasingly based on technical know-how and goodwill rather than on its physical assets, preservation of the enterprise’s human resources and business relations may be critical for creditors wishing to maximise the value of their claims. 15

Diverse theories of insolvency law and the goals of corporate rescue

Although it has been commonly recognised that corporate rescue is concerned with how to capture and maximise the going-concern surplus of distressed companies and how to distribute it among corporate constituents, different standpoints have been taken on the ways and means of realising this maximisation and whose interests should be protected. In order to reflect these different points of view, it is important to understand the diverse normative theories and hypotheses about the appropriate objectives and purposes of corporate insolvency law.

The modern debate began in the US during the 1980s over the question whether insolvency law does – or should – seek only to maximise the returns to pay creditors of an insolvent company, or whether other goals do or should matter; such as preserving jobs, rehabilitating troubled companies and protecting the interests of local communities. 16 Among the competing views on the goals or values that insolvency law should reflect, on one side, there is a ‘market and assets’ camp focusing on the assets of the debtor and value maximisation for creditors. On the opposite side is the ‘enterprise and forum’ camp, which argues that preserving an enterprise is to the benefit of many more interests than merely those of the owners and creditors, and the function of bankruptcy procedures is to establish a forum where all the interests which may be affected by the business failure can be heard. 17

The Creditors’ Bargain Theory

The creditors’ bargain theory was advanced and developed by Professor Thomas Jackson with Douglas Baird and Robert Scott. 18 The classical argument it propounded is that corporate insolvency law, at its core a collective debt collection mechanism, should be concerned only with the maximisation of creditors’ returns and creditors’ distribution questions. 19 First, it views insolvency law as a collectivised debt collection mechanism and as a response to the ‘common pool’ problem. 20 To prevent the destruction of value caused by individual creditor actions against assets, interested persons need to act collectively. 21 The collectivist compulsory system of insolvency law is justified on the grounds of a hypothetical bargain assumption that were company creditors free to agree on forms of enforcement of their claims on insolvency, they would agree to collectivist arrangements rather than procedures of individual action or partial collectivism. 22

Second, the cornerstone of the creditors’ bargain theory is the normative claim that pre-insolvent entitlements should not be impaired in the collective insolvency process. 23 Through a hypothetical bargain that focuses on the key bankruptcy objective of maximising the welfare of the group through collectivisation, the creditors agree to act as a group under a regime replicating their non-bankruptcy collection rights. 24 Bankruptcy law should change a substantive non-bankruptcy rule only when doing so preserves the value of assets for the group of investors holding rights in them. 25 Third, the broad concerns regarding business failures and social welfare are not bankruptcy problems at all but ‘that of the bulk of laws outside of bankruptcy’. 26 As it is accepted here that bankruptcy law is primarily concerned with recognising non-bankruptcy entitlements and ensuring a deployment of assets that is in the interests of all those with rights to the assets under state law, it follows that the problems brought by business failures are not bankruptcy problems. Bankruptcy proceedings should not be the place to implement a policy that society does not enforce outside of bankruptcy and that is unrelated to the preservation of assets for the firm’s investor group. 27 It follows from the above arguments under this theory that the protection of the non-creditor interests of other victims of corporate misfortune, such as employees, managers, suppliers and the community at large ought not to be a concern of insolvency law. 28

The creditor wealth maximisation argument has been highly influential and has been put into legislative effect in many jurisdictions. 29 However, this normative theory has been subject to extensive criticism by a number of schools of thought. Major concerns have focused on challenging the claim that insolvency is simply a debt collection process for the benefit of creditors and that the only legitimate goal of insolvency law is creditor wealth maximisation. The creditor wealth approach considers only hypothetical contract creditors, which is only one group of victims suffering from the company’s financial distress, and this, it has been said, fails to take account of the wide range of other stakeholders (for instance, employees, dependent suppliers, regular customers and the local community at large) that the corporate insolvency may have an impact on. 30 It is criticised that the creditor wealth maximisation view focuses only on economic value and is incapable of recognising non-economic value aspects, such as moral, political, social and personal considerations. 31

Rejecting the view that bankruptcy law is merely a response to the problem of collecting debt, Professor Korobkin presents a value-based account which views bankruptcy law as ‘a response to the many aspects of financial distress – moral, political, personal, social, and economic – and, in particular, to the grievances of those who are affected by financial distress’. 32 Because the participants’ varied grievances typically reflect conflicting and fundamentally incommensurable values, bankruptcy law has a distinct function to provide a forum for an ongoing debate in which these diverse values can be expressed and sometimes recognised. 33 Moreover, the idea that a troubled company constitutes a mere pool of assets is also challenged. It is claimed that the company is not purely a lifeless pool of assets but an enterprise with personality:

Unlike mere property, a corporation, whether in or out of bankruptcy, has potential. A corporation can continue as an enterprise: as an enterprise, it can change its personality and, perhaps more importantly, whether the corporation continues and how it changes its personality affects people in ways that are not only economic. 34

Professor Elizabeth Warren has criticised the creditors’ bargain theory for facilitating the externalisation of costs. She noted that many of the social costs incurred in the creation of a firm were borne by those parties who are not creditors and who have no formal rights to the assets of the business, such as employees, communities, suppliers, customers and others. When the firm failed, those parties were left with the costs as the parties with formal legal rights against the debtor never completely internalise the full costs of a business failure. 35 Therefore it is argued that insolvency law should look beyond pre-insolvency rights and recognise the interests of parties who lack formal legal rights in the pre-insolvency scenarios as the protection insolvency law gives to these parties is derivative in nature and limited in scope. 36

A Broad-based Contractarian Model

In his later work, Professor Donald Korobkin offered an alternative contractarian model, insisting on his proposition that the main purpose of bankruptcy law is to exist as a distinct system that deals with the general problems of financial distress, and not to specifically address the problem of recovering debt. 37 Instead of viewing insolvency law as the set of rules that contractual creditors would agree to from behind the veil of ignorance, 38 Korobkin considered bankruptcy legislation to be ‘the product of social exigency, moral conflict, and political compromise’. 39 He propounded a normative framework for bankruptcy law based on a hypothetical bargain struck by the representatives of all interests that might be affected by a company’s decline. 40 There should be some ‘normative foundations’ of bankruptcy law on which conflicting parties develop their arguments. The normative principles will prescribe limits on how bankruptcy law should alter the rights, authority and practical leverage of persons in financial distress, and offer a justified standpoint for evaluating which legal, political and personal advantages ought to be preserved and which ought to be modified. 41

By constructing a hypothetical ‘initial status quo’ for the choice of the normative principles, Korobkin asserted that the parties would choose two principles to govern insolvencies: (1) the ‘principle of inclusion’ and (2) the ‘principle of rational planning’. 42 The principle of inclusion emphasises that all affected parties would be eligible to press their demands in the context of financial distress, although this does not speak to all parties whose particular demands should ultimately be recognised or denied. 43 The ‘principle of rational planning’ has two essential ingredients: (1) the insolvency law must be broadly effective, promoting as many aims as possible; (2) when it is not possible to achieve all the aims, it must work to achieve the aims that are most important. 44 On this model, the bargainers all know they may be affected by the insolvency, but no one knows if he will be: a debtor; an unsecured creditor whether contractual or involuntary; a secured creditor; an ordinary employee; a member of the community that is otherwise unconnected to the debtor company; or somebody in a different kind of relationship. 45 Therefore, the bargainers would prefer a principle that is ‘somehow capable of maximising their welfare whichever positions they happened to occupy in varying contexts’. 46 But if no principle can guarantee the best outcome for all parties under all circumstances, then ‘as a matter of self-interest under conditions of radical uncertainty, they would want a principle that had the effect of mitigating, at least to some degree, the hardship experienced by persons in the worst-off positions’. 47 Those in the worst-off position are ‘relatively powerless in promoting their aims’ and since they ‘have the most to lose if their aims are frustrated’, are the most vulnerable. 48 Therefore, the principle of rational planning is to maximally satisfy the aims of parties as a whole by virtue of protecting the most vulnerable parties in the context of financial distress over those who are less vulnerable.

The contractarian approach has been subjected to extensive criticism. It has been said that ex ante hypothetical bargain theories of insolvency law are open to the objection that they amount to little more than an argument that thoughtful, interested, objective and neutral law makers would come to the proponent’s conclusions about insolvency. 49 By constructing a hypothetical original position in which the various players act in an economically rational manner according to a single set of criteria, the contractarian approach is unable to recognise the complex realities of business life and the many possible considerations the decision-makers may take into account in the matrix of circumstances. 50 Furthermore, the value-based account does not in itself explain clearly important distributional issues, such as how to judge trade-offs between fairness or justice and wealth creation, and neither does it provide a working standard to measure this. It is further argued that the contractarian approach fails to explain how agreements can be reached behind the veil as to who in a potential insolvency is most vulnerable and thus should enjoy priority of protection over those occupying less threatened positions. 51

The Team Production Theory

A team production theory of corporate reorganisation law has been recently developed by Professor Lynn LoPucki. 52 It is based on the original team production theory of the corporation introduced by Margaret Blair and Lynn Stout in 1999, 53 in which the interests of corporation are understood as ‘a joint welfare function of all the individuals who make firm-specific investments and agree to participate in the extra-contractual, internal mediation process within the firm’. 54 The team membership may include: stockholders; company managers; other employees; suppliers; creditors; customers; local governments; regulatory agencies and others. 55 In order to share all the costs and benefits of incorporation, and because of the impossibility of reaching that effect through direct contracts in some circumstances, team members can delegate an independent authority group – the board of directors – to divide profit and loss among them, based on each member’s contributions to the team. 56 Under the team production theory, corporate reorganisation is viewed not as a regulation imposed by government but instead as ‘a contract term by which creditors and shareholders agree to subordinate their legal rights to the preservation of the going concern’. 57 The preservation of the corporate entity is an independent value that partially accounts for the choice of reorganisation over liquidation. 58

By leaving the board of directors in full control, while at the same time limiting creditors and shareholders to their bankruptcy entitlements, the team production contract has, in effect, granted the non-legally enforceable entitlements of team member priority over the legally enforceable claims of creditors and the interests of shareholders. 59 Professor LoPucki asserts that this treatment is appropriate because honouring team production entitlements is efficient as those entitlements are payable under the team production contract and the team production contract is the bargain actually struck by team members. This is not only to reward past contributions, but also to incentivise future contribution to the team effort. 60 The calculation of the benefits of reorganisation must also take into account distributions to all team members instead of only those to creditors and shareholders.

In a nutshell, the team production theory attempts to offer a justification of corporate reorganisation by adopting the new contractarian theory of the public corporation introduced by Professors Blair and Stout in 1999 to the bankruptcy reorganisation regime. Nevertheless, critical questions remain unresolved. The theory relies on an independent board of directors, acting as fiduciaries, to divide profit and loss among them based on the team members’ respective contributions to the team. But it remains debatable whether the directors will do ‘the right thing’, given that the theory is based on a ‘wholesale grant of unfettered power to directors’. 61 It is asserted that directors would function less like disinterested trustees and more like representatives in a legislature who are expected to vigorously defend the interests of the particular constituents who elect them. 62 It is explicitly accepted that team members trust directors not because they think directors will do a good job, but because team members lack better alternatives. 63

The Multiple Values/Eclectic Approach

Professor Elisabeth Warren considers that the creditors’ bargain theory, as a single, unified theory of bankruptcy, is more of an intellectual view of bankruptcy than a complex one and runs a great risk of providing answers that, while quite sensible within confined, abstract schemes, will not work in a complex real-life corporate environment. 64 She has offered a ‘dirty, complex, elastic, interconnected view of bankruptcy’ from which outcomes cannot be predicted, and nor can all the factors relevant to a policy decision be fully articulated. 65 She explained what she has offered is ‘a comprehensive statement about the various and competing goals that underlie the bankruptcy system’ so as to provide useful assistance to the legislative and judicial decision-making. 66

Warren describes bankruptcy as a collection system that determines: the value of a failing business; how to distribute that value among parties whom the failure affects; and the extent to which affected parties can externalise the costs of failure to others who did not deal with the debtor. This system, according to her, is aimed toward four principal goals:

(1) to enhance the value of the failing debtor; (2) to distribute value according to multiple normative principles; (3) to internalise the costs of the business failure to the parties dealing with the debtor; and (4) to create reliance on private monitoring. 67

Unlike in the creditors’ bargain theory where pre-insolvency entitlements should never be impaired to accomplish purely distributional goals, 68 Warren asserts bankruptcy law can alter the interested parties’ non-bankruptcy rights because bankruptcy and non-bankruptcy rights laws deal with different kinds of default. Non-bankruptcy law provides a collection scheme that copes with the single default where only one creditor complains about repayment. On the other hand, the bankruptcy collection scheme concentrates on the debtor’s widespread default and the collapse of every creditor’s prospects for repayment. 69 The policy issues involved in the two scenarios present critical differences and thus different distributive schemes ought to be adopted. 70

Warren listed a series of distributive rationales of bankruptcy law, such as favouring creditors but also pointed out that the distributive goals may conflict with each other. She asserted that it is difficult or even impossible to provide a consistent answer to questions such as how to reallocate the resources and how to solve the conflict between the different distributive goals.

With regard to the question of whose interests bankruptcy should serve, Professor Warren views bankruptcy as ‘an attempt to reckon with a debtor’s multiple defaults and to distribute the consequences among a number of different actors’. 71 Although bankruptcy encompasses a number of competing and sometimes conflicting values in this distribution, no one value, she asserted, should dominate so that bankruptcy policy can be a composite of factors that offers a better answer to the question ‘how shall the losses be distributed?’ 72 In her view, however, the insolvency regime only protects the interests of parties without formal legal rights in an indirect fashion, largely through provisions that permit businesses to reorganise instead of being shut down by a few anxious creditors. 73

The Explicit Values Approach to Insolvency Law

The aforementioned debate is primarily American. Similar debates on the objectives of corporate insolvency and the values of corporate rescue have also taken place in the UK. UK bankruptcy legislation has been rather creditor-oriented with an unforgiving attitude toward unpaid debt and credit. A liquidation culture prevailed in England until 1986, when deep recessions caused Parliament to reassess this position. 74 In the Cork Report 75 which was published in 1982, the Review Committee suggested that the aims of a good modern insolvency law should include those that:

(i) recognise the effects of insolvency are not limited to the private interests of the insolvent and his creditors, but that other interests of society or other groups in society are vitally affected by the insolvency and its outcome, and to ensure that these public interests are recognised and safeguarded;

(j) provide means for the preservation of viable commercial enterprises capable of making a useful contribution to the economic life of the country; 76

It emphasised the social and personal detriment caused by shutdowns and wholesale redundancy 77 and the benefits to the country’s economic life of preserving viable commercial enterprises, because corporate failure was usually accompanied by wider repercussions falling not only upon intimately connected parties such as directors, shareholders and employees, but also on other interests, such as suppliers. 78

Professor Sir Roy Goode also suggests that corporate insolvency law should have four overriding objectives: (1) to rescue the debtor company where this is practicable; (2) to maximise the return to creditors as a whole where the company itself cannot be saved; (3) to establish a fair and equitable system for the ranking of claims and the distribution of assets among creditors, involving a limited redistribution of rights; and (4) to provide a mechanism by which the causes of failure can be identified and to disqualify those guilty of mismanagement by depriving them of their right to be involved in the management of other companies. 79 Nevertheless, given that the role of insolvency law is ‘not to affect pre-bankruptcy the substance of entitlements but rather to organise a collective regime designed to ensure the preservation of those entitlements to the maximum extent possible’, according to Professor Goode, it is only to this extent that the rehabilitation of an insolvent business is a legitimate function of corporate insolvency law. 80

Professor Finch also believes that the key tasks of corporate insolvency law among other things should include: (1) facilitating the recovery of companies in times of financial crisis and stimulating the rehabilitation of insolvent companies and businesses as going concerns; (2) balancing the interests of different groupings and protecting the interests of the public and of employees in the face of financial failures or management malpractices; and (3) dissolving companies when necessary. 81 In looking for the appropriate measure of insolvency law, more specifically, with regard to the objectives and their trade-off against each other associated with the openness concerning the objectives of corporate insolvency law, Finch borrows from Gerald Frug’s well-known analysis of the strategies for attempting to legitimate corporate and bureaucratic power, and offers the so-called explicit values approach to measuring insolvency law. 82 The explicit values approach ‘takes on board the public and private, the procedural and substantive and the contractarian and democratic dimensions of insolvency’. 83 She advocates that the legitimacy of the processes and principles of insolvency law can be tested by reference to four benchmarks, namely efficiency, expertise, accountability and fairness: (1) ‘Efficiency’ looks to securing democratically mandated ends at lowest cost; (2) ‘Expertise’ refers to the allocation of decision and policy functions to properly competent persons; (3) ‘Accountability’ looks to the control of insolvency participants by democratic bodies or courts or through the openness of processes and their amenability to representations; and (4) ‘Fairness’ considers issues of justice and propensities to respect the interests of affected parties by allowing such parties access to, and respect within, decision and policy processes. 84

Nevertheless, in cases where the four values themselves have conflicts, Professor Finch’s explicit values approach did not provide any further standards for determining preferences among them in the details. There is no clear answer on whether particular trade-offs between them are desirable or not. It is suggested that the merits of particular trade-offs may only be argued for in particular contexts and cannot be preordained according to set rules. 85 Mokal has argued that Finch’s understanding of the ‘benchmark’ concepts lacks consistency and that she is unable to provide a satisfactory account of their relationship inter se . According to him, ‘expertise’ and ‘accountability’ have no separate standing of their own, and should be absorbed within ‘efficiency’. 86 Fairness and efficiency cannot be traded off against each other, as efficiency in itself does not provide a goal that any area of the law should aim at. The failure to distinguish between the diverse nature of her otherwise well-argued benchmarks considerably weakens Finch’s approach. 87

Summary of Findings

This section reviewed the diverse normative theories and hypotheses about the appropriate objectives and purposes of corporate insolvency law. The creditor wealth maximisation argument promoted by the classical creditors’ bargain theory has been widely criticised for its failing to take account of the wide range of stakeholders beyond a company’s contract creditors that the corporate insolvency may have an impact on. Different standpoints have been taken on the goals of corporate insolvency law and whose interests should be protected. However, there is no consensus as to how various and competing goals that underlie the insolvency system should be prioritised and served, nor is there a working standard to determine preferences among them. As a result, critical questions, such as how to judge if trade-offs between different goals are desirable or not, remain unresolved.

Approaches to rescue

With the rise in insolvency activity that was seen in the past recessions and the growing popularity of corporate rescues, a variety of rescue mechanisms have been developed within and outside insolvency law, generally falling into two categories: informal and formal rescue strategies. Informal rescues, also referred to as ‘private restructurings’ or ‘workouts’, 88 are a non-judicial process through which a distressed company and its significant creditors 89 attempt to reach an agreement to restructure and adjust the company’s debt obligations without court intervention. Formal rescues, on the other hand, involve the use of legal procedures designed under insolvency legislation where the compromises and arrangements for restructuring are made under the supervision of the court or a formal legal structure.

Informal Rescues

Informal rescues are contractually based in nature and in themselves do not demand any sort of statutory intervention. A general advantage of private workouts is that they provide the debtor company and its creditors with a more flexible environment in which to negotiate the resolution of a company’s financial difficulties than under insolvency procedures. Publicity concerning corporate failures is likely to be minimal, thus avoiding significant jeopardy to the goodwill and reputation of the company by the negative reactions of customers and the market. The private route allows the sale of the business to be completed in good time and with a low level of disruption from publicity, both of which are essential to preserve the value of the business. In formal insolvency procedures, the complex legal institutional constraints are likely to produce more prolonged and often hostile litigation, which can have a significantly negative impact on the realisable value of the company’s business.

Furthermore, the contractual basis of informal rescue action also means that the terms of restructuring can be easily altered and adjusted during negotiations in a way that formal procedures do not allow without a valid approval mechanism. 90 Private workouts are commonly negotiated between a small group of leaders and the debtor out of the public eye. In addition, cooperation among a number of major creditors involved in a negotiation can be more readily achieved than aligning the diverse incentives of all conflicting claimholder classes as attempted under the insolvency procedures.

While noting the merits, the demerits of informal rescues are also obvious. A fundamental difficulty for the contract-based mechanism is the need to secure a consensus; usually the agreement of all parties whose rights are affected. Informal rescues are based on the contractual variation of existing rights by way of compromise, waiver or deferment of debts or alteration of priorities. They can only bind parties to the contract, therefore any dissenting creditors have the power to halt informal rescues by triggering formal insolvency procedures. This renders the informal rescue a fragile device which is dependent on a high degree of cooperation among a disparate range of parties. 91 Another concern with the informal approach is its potential to prejudice the interests of less well-placed creditors, for there may be an absence of investigative powers and a lack of inquiry into the role the directors played in bringing a company to the brink of disaster. 92

The ‘London Approach’, developed in the 1970s and designed to secure the cooperation of financial support for companies with liquidity problems, 93 has been successful in resolving financial distress with large UK companies, especially for the large multi-bank financed companies. 94 The British Bankers Association defined the ‘London Approach’ as ‘a non statutory and informal framework introduced with the support of the Bank of England for dealing with temporary support operations mounted by banks and other lenders to a company or group in financial difficulties, pending a possible restructuring’. 95 The rescue work is organised on a contractual basis, through which the potentially conflicting problems of company creditors are resolved through voluntary cooperation and coordination between the participating parties 96 without having to resort to statutory backing. 97

The process generally involves four phases. At the initial stage of the process, the participating parties should agree among themselves to an informal ‘standstill’, which typically last for several months and is sufficient to prevent all relevant creditors from taking any steps to enforce their claims against the debtor company. Secondly, a team of accountants appointed by the banks will investigate the company’s financial condition and produce an independent review of the company’s economic viability and long-term prospects. 98 Their conclusion will be acted on by a collective decision-making process in which the main creditors work together to reach a joint view on what should be done with the company. 99 Thirdly, to promote cooperation among the relevant creditors, a lead bank, typically the bank with a floating charge over the company’s assets, is normally designated to organise the gathering and distribution of the information relevant to the rescue, negotiate with the other banks and coordinate their dealings with the distressed company. 100 And finally, where negotiations are successful, an agreed business plan for the company is put into effect and is monitored. 101 One or more committees representative of the main creditor classes will normally be established to assist the lead bank’s coordination work and more importantly, to act as a provisional sounding board towards the evaluation of proposals for corporate debt restructuring and then the negotiation and implementation of the restructuring plan. 102

The relative informality provided by the London Approach allows security interests to be adjusted, a process that may prove far less complex and expensive than receivership where a number of banks are involved. 103 The approach relies on consensus, persuasion and banking collegiality in order to reconcile the interests of different creditors to a company in difficulty. 104 Like general private restructuring agreements, rescue attempts in the London Approach typically involve creditors compromising existing rights and priority through debt-equity swaps; and postponing the date for repayments or reducing the interest rate on corporate debt, or parts of it, often accompanied by management changes, asset sales and securing new finance and new or increased director guarantees. In this context, the banks may agree to provide new funding, especially where fresh loans and attendant liquidity are necessary for the debtor’s continued survival. Such additional funding is normally accorded priority over existing loans requisite creditors. 105

It has been questioned how far the lead bank can, or has the standing to, intervene in the absence of regulatory powers. 106 The operation of such voluntary collective action depends heavily on the lead lender discharging their coordination role effectively, as well as intensive cooperation among the disparate range of interested parties. It has been argued that the main difficulty of the London Approach is the lack of any formal moratorium and the need for unanimity of support from relevant creditors. 107 In addition, it is pointed out that, while this framework seems successful in large multi-bank corporate rescues, it might be less appropriate for the bulk of companies in distress where there may be only one bank and many non-financial institution creditors. 108 Moreover, corporate financing practice has developed dramatically and therefore the marketplace in which the London Approach was developed has changed dramatically. 109 Professor Finch has summarised the difficulties facing the London Approach as follows:

[m]odes of financing are becoming more fragmented and creditors’ coordination is proving more difficult as bank creditors are joined by bond holders, secondary debt traders, joint venture partners, special creditor and supplier groups and intermediate investors. The globalisation of financial markets and the emergence of markets for distressed corporate debt also put strains on the London Approach. 110

Formal Rescues

The statutory rescue procedures respond to the inherent and severe coordination problems and the holdout risks associated with the informal route. Essentially they offer a collective way in which all the affected parties are participating equally and treated according to the size and seniority of their credits. A formal procedure, such as Chapter 11 of the US Bankruptcy Code or the UK Administration, normally involve a moratorium on the enforcement of a wide range of creditors’ rights and so creates a more sustainable space within which a rescue can be organised. 111 Insolvency legislation also provides various mechanisms whereby compromises and arrangements can be made under the supervision of the court or a formal legal structure, one objective of which is to ensure that minority dissenters are eventually bound. 112

In the UK, corporate rescue procedures were first introduced through the administration order procedure and company voluntary arrangements (CVA) in the Insolvency Act 1985 and were re-enacted in the Insolvency Act 1986 (IA 1986), as recommended by the Cork Committee Report on Insolvency Law and Practice. The original administration model was not a complete rescue procedure, and its main effect was to impose a moratorium on the enforcement of creditors’ claims. The Enterprise Act 2002 (EA 2002) introduced a streamlined administration model to replace the original procedure. Under the new regime, the administration may function either as a gateway to winding up, a CVA or a scheme of arrangements, or as a stand-alone procedure, which may lead directly to dissolution. The administrator is required to first consider rescuing the company as a going concern, unless in the administrator’s view, that is not reasonably practical and/or it is not in the interests of creditors as a whole.

American Chapter 11, commonly referred to as ‘reorganisation’, aims at promoting the economically viable company to recovery and maintaining the business as a going concern. 113 By granting an automatic stay to prevent creditors from collecting their claims or enforcing their liens, incumbent management is allowed to retain control of the company and is granted the exclusive right to propose a plan of reorganisation within 120 days after the Chapter 11 filing date. 114

Both countries take a view that corporate rescues can be justified by the fact that assets used by a going concern company are more valuable than if the company was liquidated piecemeal, but the legal rescue procedures in the two jurisdictions are very different in terms of orientation and institutional arrangements. For an administration procedure, the rescue of the ailing company or the whole or part of its undertaking as a going concern is preferred, but it is not an overriding objective. The decision on which statutory purpose should be pursued is made by an outside insolvency practitioner who acts as the administrator. In contrast, the overriding objective of a Chapter 11 case, at least in theory, is the formulation and confirmation of a reorganisation plan agreed between creditors and shareholders. As already mentioned, incumbent management may remain in office and run the business as usual during the reorganisation process and are in charge of proposing a reorganisation plan. 115

Accordingly, statutory rescue procedures are designed as a collective and inclusive rescue process under which all the parties-in-interests are equally participating and treated according to the size and seniority of their credits. In order to provide adequate protection for various groups of creditors, as well as checks and balances on the conflicting incentives among different stakeholders, the legal proceedings often involve complicated documentary accountability requirements and rounds of negotiations to conclude the approval of the rescue plan. This renders the formal approach a complex proceeding that is lengthy and costly, often eventually leading to unnecessary or premature corporate liquidations. The wider economic disruption generated gives claimholders the incentive to look for alternative restructuring strategies.

Pre-pack: A Combined Form of Rescue Strategy

The ‘pre-pack’ process is commonly seen as a hybrid form of corporate rescue combining the advantages of private restructuring with some of the properties of the formal procedure. Pre-packaged bankruptcies were first introduced in US insolvency practice. They provided a feasible option for financially distressed companies, which allowed them to avoid the significant expense and relatively complicated negotiation process under traditional US Chapter 11 proceedings. A ‘pre-packaged’ Chapter 11 describes the procedure of devising a plan of reorganisation and soliciting acceptance of such a plan prior to the commencement of a bankruptcy case. 116 By doing so, an agreement is often drawn up as means of finding a compromise solution to satisfy the claims of large financial creditors. The claims of other creditors (particularly ordinary employees and trade creditors) may be left unimpaired to be paid in full under the restructuring plan. 117 By leaving them unimpaired, the company avoids negotiating with a diverse and potentially most fractious creditor group thereby avoiding a serious holdout problem.

The holdout problem can be further minimised by filing for protection under a formal procedure, 118 which has the legal power to bind dissenting creditors to the restructuring terms accepted by the majority of voting creditors, 119 that is, two-thirds in amount and more than one-half in number of those voting. This can greatly reduce the time spent in bankruptcy, because the principal remaining tasks are the approval of the disclosure statement and confirmation of the plan by the court. 120

Similarly on the UK insolvency scene, there has been a considerable increase in the number of pre-packs in recent years. 121 The percentage of administrations going through a pre-pack procedure has increased from approximately 25 per cent in 2011 to 29 per cent in 2012. 122 Although the pre-pack strategy can be traced to other forms of insolvency proceedings such as liquidation and administrative receivership, there is a growing trend of utilising the administration procedure to implement a pre-agreed arrangement, especially after the increase in the use of administration by the EA 2002. A pre-pack administration therefore refers to the situation where arrangements for the sale of an insolvent business have been negotiated with prospective purchasers and agreed by the major creditors 123 prior to the commencement of the administration procedure, with the sale being completed almost immediately after the appointment of an administrator.

The popularity of pre-pack restructuring in the UK and the US has been recognised by other jurisdictions in Europe and these are countries starting to introduce their own versions of pre-pack procedures, such as the Accelerated Financial Safeguard procedure ( Procédure de Sauvegarde Financière Accélérée) in France 124 and the new Protective Shield Proceedings ( Schutzschirmverfahren ) in Germany. 125 Despite the gradual recognition of the efficacy and efficiency of pre-pack practice in maximising the going-concern value of distressed businesses, the rescue-oriented rules offered in different jurisdictions differ as to how far they can go in seeking to promote a more cooperative and risk-taking attitude among different parties from their respective standpoints. The differences in their institutional arrangements governing insolvency and corporate rescue reflect the differences in their culture, economic environment and political constraints.

Modern corporate rescue challenges

As explained earlier, corporate rescues are very different in orientation from many aspects of the liquidation process. Liquidation is commonly viewed as essentially involving foreclosure and a piecemeal sale of the business’s assets, while the heart of a rescue process is seen as involving the continuation of the business. Rather than relatively static distribution proceedings in a strict order of priority, corporate rescues are more of a negotiating and thus bargaining proceedings focusing on ongoing commercial viability. They are accompanied by the uncertainty of the valuation on the financially distressed company. 126

Theoretically, the rescue process is all about preserving the so-called going concern surplus in those businesses that are financially distressed but still economically viable, and identifying and liquidating those economically distressed ones in a timely manner. However, it is empirically difficult to distinguish between financial and economic distress. It is often not obvious whether a troubled company with financial difficulty is still economically viable or not and the judgement varies with different parties due to their possession of information about the company and their private interests. Furthermore, the process is accompanied by significant uncertainty with regard to what the value of the company turns out to be.

The future prospects for the turnaround of the company may well depend on: the severity of its liquidity crisis; the outcome of negotiations for support from its senior financial creditors; the economic viability of the business; and the reaction of the market to the company’s financial trouble. Therefore, the key concerns in the furtherance of the rescue process in a world of uncertainty refer to the true value of the business, and the likelihood of the successful recovery ‘turn[s] importantly upon evaluation of risk and a willingness to accept risk’. 127 This dynamic nature makes the corporate rescue process even more complex and demanding. On the one hand, it needs to accommodate different stakeholders with dispersed interests bargaining with each other; on the other hand, it calls for trust among those participants as well as compromise, and possibly even necessary sacrifice from some stakeholders, in order to reach the successful rescue outcomes.

As we have seen, corporate rescue includes formal activities provided by legislation and informal activities. The key challenge to efficient negotiation in the informal rescue process is the creditor coordination problem, especially for companies with a large number of creditors and complex debt structures (often a mix of public, private and bank debt). These companies are likely to suffer from creditor holdout problems, in which a minority of claimholders refuse to accept a restructuring plan, and are better off restructuring under the less stringent voting requirements of statutory procedure. Formal rules for a collective rescue procedure, on the other hand, are designed to reduce information asymmetries and wasteful strategic behaviour and to promote cooperation in order to facilitate the achievement of the most efficient outcome. For this reason the automatic stay provision and the voting rules under a statutory rescue procedure are devised to overcome the holdout problems.

Formal rescue-oriented proceedings have their advantages in providing a forum for structured negotiations among competing and diverse interests to avoid the unnecessary collapse of businesses in the chaos of financial distress. Nevertheless, the role of insolvency law is primarily, although not merely, a response to the problem of collecting debts. The formal rules in this context impose considerable limits on departing from the pre-insolvency entitlements of claimholders and on how far they can go in response to the substantial obstacles caused by the inherent uncertainty in the progression of rescue work.

Pre-pack restructuring is a hybrid form of corporate rescue and it does present an innovative approach to overcome the holdout problem in informal workouts by providing a formal procedure to solidify the outcome of private negotiations. Yet pre-pack rescue also face challenges in capturing the going concern surplus in an uncertain state of corporate distress. In particular, how should the competing interests and various goals that underlie the insolvency system (e.g. fairness or justice and wealth creation) be prioritised when a trade-off is inevitable? This problem could be more acute in a pre-pack restructuring, where trade-offs are often pre-determined and market-led, but not always in line with the statutory objectives of a particular insolvency law. These challenges are key to the successful use and completion of pre-pack arrangements and they are extensively discussed in subsequent chapters.

1   A Belcher, Corporate Rescue (Sweet and Maxwell, London 1997), 12.

2   Ibid ., 12.

3   V Finch, Corporate Insolvency Law: Perspectives and Principles (2nd edn, CUP, Cambridge 2009), 188.

4   J Armour, A Hsu, and A Walters, The Impact of the Enterprise Act 2002 on Realisations and Costs in Corporate Rescue Proceedings (2006) Report to The Insolvency Service < http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.96.6853&rep=rep1&type=pdf> accessed 30 July 2015, 2.

5   G McCormack, Corporate Rescue Law: An Anglo-American Perspective (Edward Elgar, Cheltenham 2008), 3.

6   J Armour, ‘The Law and Economics of Corporate Insolvency: A Review’ (2001) ESRC Centre for Business Research, University of Cambridge,Working Paper No. 197 < http://www.econ.jku.at/members/Buchegger/files/Juristen/armour_2001_corporate%20insolvency.pdf > accessed 30 July 2015, 4.

7   McCormack, Corporate Rescue Law: An Anglo-American Perspective , 3.

8   DG Baird and RK Rasmussen, ‘The End of Bankruptcy’ (2002) 55 Stanford Law Review 751, 758.

9   See DG Baird and TH Jackson, ‘Corporate Reorganisation and the Treatment of Diverse Ownership Interests: A Comment of Adequate Protection of Secured Creditors in Bankruptcy’ (1984) 51 University of Chicago Law Review 97, 109. See also TH Jackson, The Logic and Limits of Bankruptcy Law (Harvard University Press, Harvard 1986), 184.

10 See DG Baird and RK Rasmussen, ‘Chapter 11 at Twilight’ (2003) 56 Stanford Law Review 673, and Baird and Rasmussen, ‘The End of Bankruptcy’, 751.

11 McCormack, Corporate Rescue Law: An Anglo-American Perspective , 7.

12 L Lopucki, ‘The Nature of the Bankrupt Firm: A Reply to Baird and Rasmussen’s The End of Bankruptcy’ (2003) 56 Stanford Law Review 645, 652.

13 McCormack, Corporate Rescue Law: An Anglo-American Perspective , 4–5.

14 H Miller and S Waisman, ‘Does Chapter 11 Reorganisation Remain a Viable Option for Distressed Businesses for the Twenty-First Century?’ (2004) 78 American Bankruptcy Law Journal 153, 192–3.

15 Legal Department of International Monetary Fund, Orderly & Effective Insolvency Procedures: Key Issues (1999) < http://www.imf.org/external/pubs/ft/orderly/ > accessed 30 July 2015.

16 Armour, The Law and Economics of Corporate Insolvency: A Review , 8.

17 A Flessner, ‘Philosophies of Business Bankruptcy Law: An International Overview’ in JS Ziegel (ed) Current Developments in International and Comparative Corporate Insolvency Law (OUP, Oxford 1994), 13–24.

18 See TH Jackson, ‘Bankruptcy, Non-Bankruptcy Entitlements, and the Creditors’ Bargain’ (1982) 91 Yale Law Journal 857; also Jackson, The Logic and Limits of Bankruptcy Law ; DG Baird and TH Jackson, ‘Bargaining After the Fall and the Contours of the Absolute Priority Rule’ (1988) 55 University of Chicago Law Review 738; Baird and Jackson, ‘Corporate Reorganizations and the Treatment of Diverse Ownership Interests: A Comment on Adequate Protection of Secured Creditors in Bankruptcy’; T Jackson and R Scott, ‘An Essay on Bankruptcy Sharing and the Creditors’ Bargain’ (1989) 75 Virginia Law Review 155.

19 For the description of the common pool problem, see Jackson, The Logic and Limits of Bankruptcy Law , 11–12; and Baird and Jackson, ‘Corporate Reorganizations and the Treatment of Diverse Ownership Interests: A Comment on Adequate Protection of Secured Creditors in Bankruptcy’, 103–5.

20 Jackson, The Logic and Limits of Bankruptcy Law , 9–11.

21 Baird and Jackson, ‘Corporate Reorganizations and the Treatment of Diverse Ownership Interests: A Comment on Adequate Protection of Secured Creditors in Bankruptcy’, 106.

22 Jackson sees bankruptcy as ‘a system designed to mirror the agreement one would expect the creditors to form among themselves were they to negotiate such an agreement from an ex ante position’. See T Jackson, ‘Bankruptcy, Non-Bankruptcy Entitlements, and the Creditors’ Bargain’ (1982) 91 Yale Law Journal 857, 860.

23 Jackson and Scott, ‘An Essay on Bankruptcy Sharing and the Creditors’ Bargain’, 159.

24 ‘A central premise underlying the creditors’ bargain theory is that a system of state law entitlements (including priorities among secured and unsecured creditors) is already in place.’ Ibid ., 159.

25 Baird and Jackson, ‘Corporate Reorganizations and the Treatment of Diverse Ownership Interests: A Comment on Adequate Protection of Secured Creditors in Bankruptcy’, 100.

26 Ibid ., 103.

27 Ibid ., 102.

28 Jackson, The Logic and Limits of Bankruptcy Law , 25. See also Baird and Jackson, ‘Corporate Reorganizations and the Treatment of Diverse Ownership Interests: A Comment on Adequate Protection of Secured Creditors in Bankruptcy’, 103. It recognises these problems as general problems, not as bankruptcy problems. Therefore: ‘Social reform should be brought about through a broad changes in the substantive law rather than through ad hoc modifications of rights in bankruptcy.’

29 Such as the German Insolvency Code of 1994. The English insolvency law also provides some support for this argument. The interests of creditors take primacy over the interests of all other groups when the company seems to be in financial distress. It can also be seen from the shift of the directors’ fiduciary duty of loyalty to the creditors of the company in the ‘twilight’ period and the administrator’s duty to act in the interests of creditors as a whole. See Finch, Corporate Insolvency Law: Perspectives and Principles , 29 and Armour, ‘The Law and Economics of Corporate Insolvency: A Review’.

30 DR Korobkin, ‘Contractarianism and the Normative Foundations of Bankruptcy Law’ (1993) 71 Texas Law Review 541, 555. See also E Warren, ‘Bankruptcy Policy’ (1987) 54 University of Chicago Law Review 775, 787–8.

31 See DR Korobkin, ‘Rehabilitating Values: A Jurisprudence of Bankruptcy’ (1991) 91 Columbia Law Review 717, 762. Korobkin, ‘Contractarianism and the Normative Foundations of Bankruptcy Law’, 581. Korobkin pointed out that ‘the problem of collecting debt is a complex one, implicating moral, political, personal, social, as well as economic values’.

32 See Korobkin, ‘Rehabilitating Values: A Jurisprudence of Bankruptcy’, 721.

33 Ibid ., 721–2.

34 Ibid ., 745.

35 E Warren, ‘Bankruptcy Policy Making in an Imperfect World’ (1993) 92 Michigan Law Review 336, 356.

37 See Korobkin, ‘Contractarianism and the Normative Foundations of Bankruptcy Law’.

38 The ‘veil of ignorance’ is a position in which: ‘no one knows his place in society, his class position or social status; nor does he know his fortune in the distribution of natural assets and abilities, his intelligence and strength, and the like. Nor, again, does anyone know his conception of the good, the particulars of his rational plan of life, or even the special features of his psychology such as his aversion to risk or liability to optimism or pessimism.’ See Korobkin ibid ., 564 referring to Rawls’ famous concept, utilised as an important building block of his theory of justice. See further J Rawls, A Theory of Justice (Harvard University Press, Harvard 1971).

39 Korobkin, ‘Contractarianism and the Normative Foundations of Bankruptcy Law’, 543.

40 McCormack, Corporate Rescue Law: An Anglo-American Perspective , 28.

41 Korobkin, ‘Contractarianism and the Normative Foundations of Bankruptcy Law’, 551.

42 Ibid ., 575–89.

43 Ibid. , 575.

44 Ibid ., 581.

45 McCormack, Corporate Rescue Law: An Anglo-American Perspective , 28.

46 See Korobkin, ‘Contractarianism and the Normative Foundations of Bankruptcy Law’, 578.

47 Ibid ., 579.

48 Ibid ., 584.

49 See McCormack, Corporate Rescue Law: An Anglo-American Perspective , 29–30 referring to CW Mooney ‘A Normative Theory of Bankruptcy Law’, whose comments were framed with particular reference to Korobkin’s theory.

50 McCormack, Corporate Rescue Law: An Anglo-American Perspective , 30.

51 See Finch, Corporate Insolvency Law: Perspectives and Principles , 39–40.

52 LoPucki, ‘A Team Production Theory of Bankruptcy Reorganisation’ (2004) 557 Vanderbilt Law Review 741.

53 MM Blair and LA Stout, ‘A Team Production Theory of Corporate Law’ (1999) 85 Virginia Law Review 247.

54 Ibid. , 288.

55 LoPucki, ‘A Team Production Theory of Bankruptcy Reorganisation’, 749.

56 Blair and Stout, ‘A Team Production Theory of Corporate Law’, 749–50.

57 LoPucki, ‘A Team Production Theory of Bankruptcy Reorganisation’, 743.

58 Ibid ., 769.

59 Ibid ., 758.

60 Ibid. , 750.

61 Ibid ., 778.

62 See Blair and Stout, ‘A Team Production Theory of Corporate Law’, footnote 136 at p 302.

63 LoPucki, ‘A Team Production Theory of Bankruptcy Reorganisation’, 778.

64 Warren, ‘Bankruptcy Policy Making in an Imperfect World’, 813.

65 Ibid ., 811.

66 ‘I have not offered a single-rationale policy that compels solutions in a particular case. I have not given any answers to specific statutory issues. I have only identified normative considerations that may drive legislative and judicial decisions.’ Ibid ., 795–6.

67 Warren, ‘Bankruptcy Policy Making in an Imperfect World’, 343–4 .

68 Jackson and Scott, ‘An Essay on Bankruptcy Sharing and the Creditors’ Bargain’, 159.

69 Warren noticed that there are: ‘two prototypes of default: first, the single default where only one creditor complains about repayment and the remaining creditors are evidently (even if only temporarily) content with their repayment prospects; and second, the debtor’s widespread default and collapse in which every creditors’ prospects for payment are sharply diminished.’ See Warren, ‘Bankruptcy Policy Making in an Imperfect World’, 781.

70 Ibid ., 782.

71 Ibid ., 777.

73 Warren, ‘Bankruptcy Policy Making in an Imperfect World’, 355–6.

74 PR Wood, Principles of International Insolvency (2nd edn, Sweet and Maxwell 2007), 175.

75 Kenneth Cork and Insolvency Law Review Committee, Insolvency Law and Practice: Report of the Review Committee (Cmnd 8558, 1982). The Cork Committee, the chairman of which was the late Sir Kenneth Cork, was appointed in 1977 with wide-ranging terms of reference covering corporate and individual insolvency. Its report led to a government White Paper in 1984 – A Revised Framework for Insolvency Law (Cmnd 9175, 1984), setting out an intention to implement the bulk, but not all, of the Committee’s recommendations. This eventually led to the Insolvency Act 1986.

76 Cork and Committee, Insolvency Law and Practice: Report of the Review Committee , 54–5. There were (a) to (l) aspects contained in the aims of a good modern insolvency law.

77 IF Fletcher, ‘UK Corporate Rescue: Recent Developments – Changes to Administrative Receivership, Administration, and Company Voluntary Arrangements – the Insolvency Act 2000, the White Paper 2001, and the Enterprise Act 2002’ (2004) 5 European Business Organization Law Review 119, 122.

78 Cork and Committee, Insolvency Law and Practice: Report of the Review Committee , 56.

79 See R Goode, Principles of Corporate Insolvency Law (3rd edn, Sweet and Maxwell 2005), 39.

80 Ibid ., 39.

81 Finch, Corporate Insolvency Law: Perspectives and Principles , 27.

82 Ibid. , 64.

84 Ibid. , 56.

85 Ibid ., 65.

86 RJ Mokal, ‘On Fairness and Efficiency’ (2003) 66 Modern Law Review 452.

88 Workout was defined as ‘borrower’s efforts to negotiate with its lenders for a restructuring of its debts outside of bankruptcy or other court proceedings’. MS Kirschner et al ., ‘Prepackaged Bankruptcy Plans: The Deleveraging Tool of the ’90s in the Wake of Old and Tax Concerns’ (1991) 21 Seton Hall Law Review 643, at note 7.

89 For instance, financial creditors such as banks, or major trade creditors and bondholders.

90 Finch, Corporate Insolvency Law: Perspectives and Principles , 208.

91 D Brown, Corporate Rescue: Insolvency Law in Practice (Wiley Series in Commercial Law, J Wiley, New York 1996), 10. Finch, Corporate Insolvency Law: Perspectives and Principles , 209–10.

92 Finch, Corporate Insolvency Law: Perspectives and Principles , 209.

93 Goode, Principles of Corporate Insolvency Law , para.10-04.

94 Ibid. , para.10-135.

95 British Bankers’ Association, ‘London Approach’ (16/02/2004) previously available at < http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=130&a=2281 > accessed 9 November 2007.

96 Particularly the banks and other financial institution creditors.

97 Goode, Principles of Corporate Insolvency Law , para.10-135.

98 INSOL International, ‘Statement of Principles for a Global Approach to Multi-Creditor Workouts’ (Report) (2000), 2–3. And Goode, Principles of Corporate Insolvency Law , para.10-135.

99 One of the crucial tasks is to safeguard a sound information flow, including information-gathering and dissemination, among the participating parties so that the action taken is coordinated in a cooperative manner.

100 Creditor committees reduce information asymmetries that would endanger trust and cooperation between creditors and the debtor. See also P Brierley and G Vilieghe, ‘Corporate Workouts, the London Approach and Financial Stability’ (1999) 7 Financial Stability Review 168, 174; Finch, Corporate Insolvency Law: Perspectives and Principles , 221.

101 Finch, Corporate Insolvency Law: Perspectives and Principles , 220.

102 J Armour and SF Deakin, ‘Norms in Private Insolvency Procedures: The ‘London Approach’ to the Resolution of Financial Distress’ (2000) ESRC Centre for Business Research, University of Cambridge, Working Paper No. 173 < http://core.ac.uk/download/pdf/7151360.pdf > accessed 30 July 2015, 38–9. Such committees are often advised and assisted by professional advisers for better commercial decision-making.

103 Finch, Corporate Insolvency Law: Perspectives and Principles , 219.

104 Ibid ., 219–20.

105 The traditional domination of bank debt in financing large UK debtors is identified as one of the fundamental backgrounds of the prevalence of the London Approach. See further Armour and Deakin, ‘Norms in Private Insolvency Procedures: The ‘London Approach’ to the Resolution of Financial Distress’, 38.

106 Brown, Corporate Rescue: Insolvency Law in Practice , para.1.31. It becomes even more difficult for banks to coordinate given the increasing complexity of financial structures where hedge funds and private equity groups grew explosively in power and influence in recent years. This dramatically reduces the ability of the banks to pressure such parties into agreeing a rescue plan. See further V Finch, ‘The Dynamics of Insolvency Law: Three Models of Reform’, (2009) 3 Law and Financial Markets Review , 438.

107 Finch, Corporate Insolvency Law: Perspectives and Principles , 223.

108 Brown, Corporate Rescue: Insolvency Law in Practice , para.1.31. The complexity of the company’s capital structure and the heterogeneity of the financial claims could generate severe holdout problems.

109 Armour and Deakin, ‘Norms in Private Insolvency Procedures: The ‘London Approach’ to the Resolution of Financial Distress’, 31–3.

110 V Finch, ‘The Recasting of Insolvency Law’ (2005) 68 Modern Law Review 713, 727. The sheer involvement of a greater number and diversity of players is likely to mitigate against the rapid, informed and cheap negotiation of rescues by a stable group of parties. See further Finch, Corporate Insolvency Law: Perspectives and Principles , 225.

111 Ibid. , 210.

112 For instance, a creditors’ meeting will be convened within a practically reasonable period; the reorganisation plan needs to be accepted by the majority of the allowed claims. Under English administration procedure, the administrator’s proposals are passed when support is obtained from a majority in value of those present and voting creditors, either in person or by proxy. In the US, claims and interests are dealt with by classes, specifying unimpaired and impaired classes. A plan is deemed to be accepted when at least two-thirds of votes and more than one-half in number of allowed claims of each voting class of creditors, and two-thirds in amount of the shares for a class of equity interests, have accepted it.

113 It is said that the motive for introducing the Chapter 11 procedure was to increase the possibility that the company would emerge as a going concern from the reorganisation process. See J Franks and W Torous, ‘Lessons from a Comparison of US and UK Insolvency Codes’ (1992) 8 Oxford Review of Economic Policy 70, 75.

114 The court may grant extension of this exclusive period up to 18 months after the petition date. Plan negotiations typically are conducted primarily between the debtor and one or more official committees appointed shortly after the filing of debtor’s bankruptcy petition, although any party in interest may seek to participate in negotiations. Once the debtor reaches agreement with its major constituencies on a plan that appears to have the necessary support to be confirmed, the plan will be filed with the bankruptcy court. See MD Plevin et al ., ‘Pre-Packaged Asbestos Bankruptcies: A Flawed Solution’ (2008) 44 South Texas Law Review 883, 886.

115 Though the existing management can run the business in the ordinary way, court approval will be required for substantial asset sales, section 361 of the US Bankruptcy Code. For the relative merits of the US DIP model and the British PIP model, see D Hahn, ‘Concentrated Ownership and Control of Corporate Reorganisations’ (2004) 4 Journal of Corporate Law Studies 117; V Finch, ‘Control and Co-ordination in Corporate Rescue’ (2005) 25 Legal Studies 374.

116 Kirschner et al ., ‘Prepackaged Bankruptcy Plans: The Deleveraging Tool of the ’90s in the Wake of Old and Tax Concerns’, footnote 8 at p 644. In contrast to pre-packaged cases, there are also pre-negotiated cases, where some debtors negotiated the terms of their representatives prior to bankruptcy, but did not solicit usable votes prior to filing or did not solicit them from all impaired creditor classes. See T Eisenberg and LM LoPucki, ‘Shopping for Judges: An Empirical Analysis of Venue Choice in Large Chapter 11 Reorganizations’ (1999) 84 Cornell Law Review 967, 976.

117 TJ Salerno and CD Hansen, ‘A Prepackaged Bankruptcy Strategy’ (1991) 12 Journal of Business Strategy 36.

118 Such as the UK administration procedure or the US Chapter 11 reorganisation.

119 KA Mayr, ‘Enforcing Prepackaged Restructurings of Foreign Debtors under the U.S. Bankruptcy Code’ (2006) 14 American Bankruptcy Institute Law Review 469, 497.

120 E Tashjian et al. , ‘Prepacks: An Empirical Analysis of Prepackaged Bankruptcies’ (1996) 40 Journal of Financial Economics 135, 138.

121 Frisby’s research samples of administration and receivership cases between September 2001 and September 2004 showed that there were 222 administration cases and 118 pre-packaged administration samples. Of the 118 administration pre-packs, 40 cases (33.9 per cent) were pre-Enterprise Act 2002 and 78 (66.1 per cent) were post-Enterprise Act 2002 cases. S Frisby, ‘A Preliminary Analysis of Pre-Packaged Administrations’ (Report) (R3: The Association of Business Recovery Professionals 2007), 15.

122 The Insolvency Service , 2012 Annual Review of Insolvency Practitioner Regulation (June 2013), 4.

123 This study uses the expression ‘major creditors’ as shorthand for the parties that could exert some degree of influence on the disposal process, including the senior secured bank creditors, significant trade creditors or bondholders.

124 The ‘accelerated financial safeguard procedure’ was created by the Banking and financial regulation law as of 22 October 2010, Loi de Régulation Bancaire et Financière , No. 2010-1249, JORF No. 0247, 23 October 2010 (Articles 57 and 58) and was codified in Article L.628-1 and L.628-7 of French Commercial Code.

125 The ‘Protective Shield Proceedings’ was introduced by the ‘Act for the Further Facilitation of the Reorganization of Companies’ ( Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen ) enacted on 7 December 2011 and now is contained in Section 270b of the German Insolvency Code.

126 DG Baird and DS Bernstein, ‘Absolute Priority, Valuation Uncertainty, and the Reorganization Bargain’ (2006) 115 Yale Law Journal 1930.

127 JL Westbrook, ‘The Control of Wealth in Bankruptcy’ (2004) 82 Texas Law Review 795, 805.

Table of Contents

• Company and Insolvency Law
• Comparative Law
• Corporate Law and Governance

• [185.80.151.9]
• 185.80.151.9

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Understanding the Insolvency and Bankruptcy Code, 2016: Analysing Developments in Jurisprudence

A collaborative report with the Insolvency and Bankruptcy Board of India (IBBI) that analyses evolving jurisprudence under the Insolvency and Bankruptcy Code (Code).

Summary: The Report captures case law developments spanning two years of the enactment of the Code. The analysis of fifteen heavily litigated issues provides clarity on key concepts of the Code.

The Vidhi Centre for Legal Policy and the Insolvency and Bankruptcy Board of India are delighted to present “Understanding the Insolvency and Bankruptcy Code, 2016: Analysing Developments in Jurisprudence.”

In the two years since the enactment of the Code, stakeholders in the insolvency eco-system have looked to case law to provide clarity on key concepts under the Code, and to help in the smooth functioning of the processes under the Code. This publication captures such case law developments on fifteen select issues that have been most heavily litigated under the Code. We hope that this publication will serve as a useful reference point for those wishing to understand how jurisprudence under the Code has evolved and enriched practice of the Code in the country.

Filed Under

• Insolvency and Bankruptcy

About the Authors

Shreya was a Research Fellow at Vidhi.

Debanshu is one of Vidhi’s Co-Founders. He has over a decade of experience in commercial laws and the financial sector and has advised the Government of India on several legislative projects in this space. He was instrumental in advising the Government on the design and drafting of the Insolvency and Bankruptcy Code and its subsequent implementation. He has developed and curated Vidhi’s work on insolvency law, corporate law, financial regulation, and competition law and conceptualized its Bankruptcy Research Program. He has served as a member of a Government-appointed committee for operationalizing the National Company Law Tribunal and deposed before two Parliamentary committees examining financial sector legislation. He has also worked as a teaching fellow at Harvard Law School. He is an alumnus of the Harvard Law School, the University of Oxford, and Hidayatullah National Law University. He attended Harvard as a Fulbright Scholar and was awarded the Irving Oberman Memorial Prize in Bankruptcy and the Dean’s scholar prize in Corporations. He was also awarded a Distinction for his graduate studies at Oxford. In 2017, he was selected for NYU School of Law’s Hauser Global Scholarship, which he waived. His academic work has been published in peer-reviewed journals and an edited book published by Cambridge University Press, New York. He has been consulted by and mentioned in global business publications, such as IFR Asia and The Economist. Earlier, Debanshu practiced as an M&A and regulatory lawyer with AZB & Partners at its Mumbai and New Delhi offices.

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• The impact of administrative reforms on government efficiency in the 21st century.
• Examining the role of public consultation in administrative decision-making processes.
• The effectiveness of ombudsman institutions in resolving public grievances: A comparative study.
• Legal challenges in implementing electronic governance and digitalization of administrative services.
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• The role of administrative law in shaping public health policies.
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• The intersection of administrative law and human rights.
• The administrative burden of tax law enforcement and compliance.
• Public access to information: Evaluating legal frameworks in different jurisdictions.
• The role of whistleblowers in the administrative state: Protection versus persecution.
• Outsourcing government services: Legal ramifications and oversight.
• Legal standards for emergency powers of administrative agencies.
• Administrative law and the management of public lands.
• Challenges in regulatory enforcement against multinational corporations.
• The impact of administrative decisions on small businesses.
• Legal remedies for administrative injustices: Are they sufficient?
• The influence of lobbying on administrative rule-making.
• The role of the judiciary in shaping administrative law.
• The future of public administration: Predicting changes in law and policy.
• The legal implications of blockchain technology in banking and finance.
• An analysis of regulatory approaches to cryptocurrency in major global economies.
• The role of law in preventing financial crises: Lessons learned from past financial collapses.
• Legal challenges in implementing digital currencies by central banks.
• Consumer protection in online banking: Evaluating current legal frameworks.
• The impact of Brexit on the banking and finance laws in the UK and EU.
• Regulatory responses to financial innovation: Balancing innovation and consumer protection.
• Legal strategies for combating money laundering in the international banking sector.
• The influence of international sanctions on banking and financial transactions.
• Legal issues surrounding the securitization of assets.
• The role of legal frameworks in fostering sustainable banking practices.
• The enforcement of banking regulations against systemic risk.
• Legal aspects of banking insolvencies and their impact on the global economy.
• The evolution of consumer credit laws and their impact on the banking industry.
• The effectiveness of anti-corruption regulations in the banking sector.
• Legal considerations in the management of cross-border banking operations.
• The regulation of shadow banking systems and their legal implications.
• Legal challenges faced by fintech companies in the banking sector.
• The role of law in addressing disparities in access to banking services.
• Legal frameworks for banking privacy and data protection in the age of digital banking.
• The impact of artificial intelligence on regulatory compliance in banking.
• Legal aspects of risk management in banking: Current practices and future directions.
• The legalities of banking for high-risk clients: Balancing business and regulatory requirements.
• The enforcement of Basel III standards in developing countries.
• Legal issues related to bank mergers and acquisitions.
• The regulation of international investment and its impact on banking laws.
• Legal challenges in microfinancing: Protecting both lenders and borrowers.
• The implications of non-performing loans on banking law and policy.
• Banking dispute resolution: The effectiveness of arbitration and mediation.
• The legal framework for Islamic banking and finance: Comparison with Western banking laws.
• The role of the judiciary in shaping banking laws and practices.
• The future of banking regulation: Predicting changes post-global pandemic.
• Legal frameworks governing venture capital and its role in economic development.
• Regulatory challenges in mobile and electronic payment systems.
• The impact of interest rate regulations on banking profitability and lending practices.
• Legal approaches to combat insider trading in the banking sector.
• The role of legal systems in shaping corporate governance in banks.
• Legal provisions for the protection of minority shareholders in banks.
• Regulatory frameworks for derivatives: Balancing risk and innovation.
• The role of international law in governing global banking practices.
• The impact of global trade agreements on domestic commercial laws.
• Legal challenges in e-commerce: Consumer rights and seller responsibilities.
• The enforcement of international commercial contracts: Comparative legal analysis.
• Intellectual property rights in the digital age: Protecting innovations while fostering competition.
• Legal frameworks for cross-border e-commerce transactions.
• The role of commercial law in supporting small and medium enterprises (SMEs).
• Arbitration vs. court litigation: Choosing the right path for commercial disputes.
• The evolution of commercial law with the rise of artificial intelligence and robotics.
• Legal strategies for protecting brand identity and trademarks internationally.
• The impact of anti-monopoly laws on corporate mergers and acquisitions.
• Legal aspects of supply chain management and logistics.
• The enforcement of non-disclosure agreements in international business deals.
• Consumer protection laws in the context of misleading advertising and sales practices.
• The role of commercial law in regulating online payment systems.
• Contract law for the modern entrepreneur: Navigating contracts in a digital world.
• The influence of cultural differences on international commercial negotiations and laws.
• Legal challenges in franchising: Protecting franchisors and franchisees.
• Commercial leasing disputes and the law: Trends and resolutions.
• Corporate social responsibility and commercial law: Legal obligations and implications.
• Legal implications of Brexit for European trade and commercial law.
• Regulation of commercial drones: Privacy, safety, and commercial uses.
• Legal issues surrounding the gig economy and contract employment.
• Protecting consumer data in commercial transactions: Legal obligations and challenges.
• Legal aspects of marketing and advertising in digital media.
• Impact of environmental laws on commercial practices: From compliance to competitive advantage.
• Legal remedies in commercial law: Exploring efficient dispute resolution mechanisms.
• Insolvency and bankruptcy: Legal strategies for rescuing troubled businesses.
• The legal consequences of business espionage: Protecting commercial interests.
• The role of trademarks in building and maintaining brand value.
• Corporate governance in the modern corporation: Legal frameworks and challenges.
• Comparative analysis of commercial guaranties across different legal systems.
• Legal issues in the export and import of goods: Navigating international regulations.
• The regulation of commercial insurance: Balancing stakeholder interests.
• Legal challenges in real estate development and commercial property investments.
• Impact of digital currencies on commercial transactions.
• International taxation and its impact on multinational commercial operations.
• The regulation of unfair competition in a globalized market.
• Legal strategies for managing commercial risks in unstable economies.
• The role of law in innovative financing methods like crowdfunding and peer-to-peer lending.
• Contractual liability and risk management in international commercial projects.
• The impact of digital market platforms on traditional competition law frameworks.
• Analyzing the effectiveness of antitrust laws against tech giants in the digital economy.
• Comparative analysis of competition law enforcement in the US and EU.
• The role of competition law in regulating mergers and acquisitions in the healthcare sector.
• Challenges in applying competition law to free-of-charge services on the internet.
• Legal strategies for combating price fixing in international markets.
• The impact of Brexit on competition law and policy in the UK.
• Competition law and its role in managing market dominance by multinational corporations.
• Evaluating the need for reform in competition law to adapt to global economic changes.
• The enforcement of competition law against patent abuse and anti-competitive practices in the pharmaceutical industry.
• The role of competition authorities in promoting innovation through enforcement policies.
• Analyzing the intersection of competition law and consumer protection.
• The effectiveness of leniency programs in uncovering and deterring cartel activity.
• Impact of competition law on small and medium-sized enterprises: Protection or hindrance?
• The influence of artificial intelligence on competitive practices and regulatory responses.
• The role of economic evidence in competition law litigation.
• Globalization and its effects on national competition law policies.
• The challenges of enforcing competition law in digital advertising markets.
• Network effects and lock-in as challenges for competition law in the IT industry.
• Legal remedies for anti-competitive practices in the energy sector.
• The dynamics of competition law in developing economies: Case studies from Africa, Asia, and Latin America.
• The implications of cross-border competition law enforcement in multinational operations.
• Consumer welfare and the debate over the goals of competition law.
• The regulation of joint ventures under competition law: A critical analysis.
• Vertical restraints and competition law: Balancing market efficiencies and anti-competitive concerns.
• The role of competition law in sports, media, and entertainment industries.
• Competition law and policy in the era of globalization: Protecting domestic industries while encouraging innovation.
• The future of competition law enforcement in a post-pandemic world.
• The effectiveness of competition law in curbing monopolistic practices in the telecom industry.
• Balancing national security interests and competition law.
• The role of whistle-blowers in competition law enforcement.
• Assessing the impact of public sector monopolies on competition law.
• Competition law as a tool for economic development in emerging markets.
• The challenges of proving intent in anti-competitive practices.
• The application of competition law to the agricultural sector and its impact on food security.
• Reform proposals for more effective competition law enforcement.
• The role of state aid and subsidies in competition law.
• Competition law implications of blockchain technology and cryptocurrencies.
• The balance between intellectual property rights and competition law.
• The use of machine learning algorithms in predicting and analyzing market competition.
• The evolving concept of constitutionalism in the digital age.
• Analysis of constitutional changes in response to global pandemics.
• The role of the judiciary in upholding constitutional rights in times of political turmoil.
• Comparative study of free speech protections under different constitutional regimes.
• The impact of migration crises on constitutional law frameworks in the EU.
• Gender equality and constitutional law: Examining legal reforms across the globe.
• The constitutional implications of Brexit for the United Kingdom.
• Federalism and the balance of power: Lessons from the United States Constitution.
• The enforceability of social and economic rights under constitutional law.
• The influence of international human rights treaties on national constitutional laws.
• The right to privacy in the era of mass surveillance: A constitutional perspective.
• The role of constitutions in managing ethnic and religious diversity.
• Constitutional law and the challenge of climate change.
• The legality of emergency powers under constitutional law in various countries.
• The impact of artificial intelligence on constitutional rights and liberties.
• Same-sex marriage and constitutional law: A comparative analysis.
• The constitutionality of the death penalty in the 21st century.
• Age and constitutional law: The rights and protections afforded to the elderly.
• Constitutional reforms and the evolution of democratic governance in Africa.
• The role of the constitution in combating corruption within government institutions.
• Gun control and constitutional rights: A critical analysis.
• The balance between national security and individual freedoms in constitutional law.
• The effectiveness of constitutional courts in protecting minority rights.
• The constitution as a living document: Interpretation and change in judicial review.
• Assessing the constitutional frameworks for federal and unitary states.
• The impact of populism on constitutional democracy.
• Constitutional law in the face of technological advancements: Regulation and rights.
• The role of constitutional amendments in shaping political stability.
• Analyzing the separation of powers in newly formed governments.
• Indigenous rights and constitutional law: Case studies from North America and Australasia.
• Constitutional law and public health: Legal responses to health emergencies.
• The constitutionality of affirmative action policies in education and employment.
• Political party bans and democracy: A constitutional analysis.
• The role of the constitution in economic policy and regulation.
• Constitutional challenges to the regulation of cryptocurrencies and blockchain technologies.
• The implications of judicial activism for constitutional law.
• The constitution and the right to a clean and healthy environment.
• The intersection of constitutional law and international diplomacy.
• Protection of children’s rights within constitutional frameworks.
• The future of constitutional governance in virtual and augmented reality environments.
• The enforceability of electronic contracts in international commerce.
• The impact of AI on contract formation and enforcement.
• Comparative analysis of contract law remedies in different jurisdictions.
• The legal implications of smart contracts in blockchain technologies.
• The role of contract law in regulating freelance and gig economy work.
• The challenges of cross-border contract enforcement in the digital age.
• Contractual risk management in international construction projects.
• The doctrine of frustration in contract law: Contemporary issues and challenges.
• Consumer protection in online contracts: A critical analysis.
• The influence of cultural differences on international commercial contracts.
• Force majeure clauses in contracts during global crises, such as the COVID-19 pandemic.
• The evolution of contract law with technological advancements.
• Legal issues surrounding the termination of contracts: A comparative study.
• The role of contract law in sustainable development and environmental protection.
• Misrepresentation in contract law: A review of current legal standards.
• The legal status of verbal agreements in a digital world.
• Contractual obligations and rights in the sharing economy.
• The interplay between contract law and intellectual property rights.
• The effectiveness of liquidated damages clauses in commercial contracts.
• Unconscionability in contract law: Protecting the vulnerable party.
• The enforcement of non-compete clauses in employment contracts.
• The legality of automatic renewal clauses in consumer and business contracts.
• The impact of contract law on consumer rights in financial agreements.
• Standard form contracts and the imbalance of power between parties.
• The role of mediation in resolving contract disputes.
• Contract law in the sale of goods: The challenges of e-commerce.
• The future of contract law in regulating virtual and augmented reality transactions.
• The concept of ‘good faith’ in contract negotiation and execution.
• Legal implications of contract breaches in international trade.
• The application of contract law in healthcare service agreements.
• The enforceability of penalty clauses in different legal systems.
• Contract modifications: Legal implications of changing terms mid-agreement.
• The legal challenges of subscription-based contract models.
• Contract law and data protection: Obligations and liabilities.
• The impact of insolvency on contractual relationships.
• The regulation of crowdfunding agreements under contract law.
• Consumer contracts and the right to withdraw in the digital marketplace.
• Ethical considerations in contract law: Duties beyond the written document.
• The use of contract law in combating human rights violations.
• The effectiveness of international conventions in harmonizing contract law across borders.
• Corporate governance and its impact on shareholder activism.
• The role of corporate social responsibility in modern business practices.
• Legal strategies to combat corporate fraud and enhance transparency.
• Comparative analysis of corporate bankruptcy laws and their effectiveness.
• The influence of global corporate regulations on multinational mergers and acquisitions.
• The impact of environmental regulations on corporate operations and compliance.
• Legal challenges and opportunities in corporate restructuring processes.
• Corporate liability for human rights violations in international operations.
• The effectiveness of anti-money laundering laws in the corporate sector.
• The role of ethics in corporate law: How legal frameworks shape business morality.
• The impact of technology on corporate governance: Blockchain and beyond.
• Legal aspects of venture capital funding in startups and SMEs.
• Corporate law in the digital age: Challenges and opportunities for digital enterprises.
• The role of minority shareholders in influencing corporate decisions.
• Legal frameworks for corporate whistleblowing and the protection of whistleblowers.
• Corporate insolvency procedures: A comparative study of the US and EU frameworks.
• The evolution of corporate personhood and its legal implications.
• The role of stock exchanges in enforcing corporate law.
• Legal issues surrounding corporate espionage and competitive intelligence gathering.
• Comparative analysis of corporate governance codes across different jurisdictions.
• Legal frameworks for handling conflicts of interest in corporate boards.
• The regulation of corporate political contributions and lobbying activities.
• Corporate taxation laws and their impact on international business strategies.
• The regulation of joint ventures under corporate law: Balancing interests and sharing control.
• The challenges of maintaining corporate compliance in a global market.
• Corporate law and the protection of intellectual property rights.
• The effectiveness of corporate penalties in deterring corporate misconduct.
• Legal aspects of employee stock ownership plans (ESOPs).
• Corporate law implications for artificial intelligence integration in business practices.
• The legal challenges of managing cyber risk in corporate entities.
• Corporate law’s role in managing and disclosing financial risks.
• The impact of corporate law on the governance of nonprofit organizations.
• Legal responsibilities and liabilities of corporate directors and officers.
• The role of international treaties in shaping corporate law practices.
• Corporate law and its influence on strategic business alliances and partnerships.
• Legal aspects of sustainable investment in corporate decision-making.
• The regulation of private equity and hedge funds under corporate law.
• Legal challenges in corporate branding and marketing strategies.
• Corporate law considerations in the management of supply chains.
• The impact of corporate law on mergers and acquisitions in emerging markets.
• The impact of forensic science advancements on criminal law and procedure.
• Analyzing the effectiveness of rehabilitation programs in reducing recidivism rates.
• The role of mental health assessments in criminal sentencing.
• Legal challenges in prosecuting international cybercrimes.
• The evolution of laws against domestic violence and their enforcement.
• The effectiveness of death penalty deterrence: A critical analysis.
• Legal frameworks for combating human trafficking: Global perspectives.
• The influence of social media on criminal behavior and law enforcement.
• Racial disparities in criminal sentencing: Causes and legal remedies.
• The application of criminal law to acts of terrorism: Balancing security and civil liberties.
• Juvenile justice: Reforming the approach to underage offenders.
• The legal implications of wrongful convictions: Prevention and compensation.
• Drug policy reform: The shift from criminalization to harm reduction.
• The impact of body-worn cameras on policing and criminal justice.
• Legal and ethical considerations in the use of DNA evidence in criminal trials.
• The role of the insanity defense in criminal law: A comparative study.
• Legal strategies for addressing gang violence within urban communities.
• The criminalization of poverty and its impact on justice.
• Analyzing the effectiveness of sexual assault legislation.
• The role of public opinion in shaping criminal law reforms.
• Legal approaches to combating corruption and white-collar crime.
• The challenges of protecting victims’ rights in criminal proceedings.
• The impact of immigration laws on criminal justice practices.
• Ethical and legal issues in the use of undercover policing tactics.
• The effects of legalizing marijuana on criminal justice systems.
• The role of international cooperation in combating cross-border criminal activities.
• The use of restorative justice practices in criminal law systems.
• Challenges in the enforcement of wildlife protection laws.
• Legal issues surrounding the use of force by law enforcement.
• The implications of emerging technologies for criminal law and justice.
• Legal definitions of terrorism and their impact on law enforcement.
• The impact of social movements on criminal law reform.
• Addressing elder abuse through criminal statutes and protections.
• The role of forensic psychology in criminal investigations.
• Legal consequences of financial crimes in different jurisdictions.
• Challenges in prosecuting war crimes and genocide.
• The legal aspects of electronic monitoring and surveillance in criminal investigations.
• The implications of international extradition in criminal law.
• Addressing the challenges of witness protection programs.
• The intersection of criminal law and human rights in detention and interrogation.
• Legal frameworks for data protection and privacy in the digital age.
• The implications of the General Data Protection Regulation (GDPR) on global internet governance.
• Cybersecurity laws: National strategies and international cooperation.
• The legality of government surveillance programs under international cyber law.
• Intellectual property challenges in the era of digital media.
• Legal issues surrounding the use of artificial intelligence and machine learning.
• The enforcement of cybercrimes: Challenges and strategies.
• Rights and responsibilities of individuals and corporations under cyber law.
• Cyberbullying and online harassment: Legal remedies and limitations.
• The role of cyber law in managing online misinformation and fake news.
• Legal challenges in the regulation of cryptocurrencies and blockchain technology.
• The impact of cloud computing on privacy and data security legal frameworks.
• Legal aspects of e-commerce: Consumer protection online.
• The digital divide: Legal implications of unequal access to technology.
• Regulation of digital advertising and its implications for privacy.
• Jurisdictional issues in cyberspace: Determining liability in a borderless environment.
• Legal considerations for Internet of Things (IoT) devices in consumer and industrial applications.
• The role of anonymity in the internet: Balancing privacy and accountability.
• Cyber law and its impact on the creative industries: Copyright issues in digital content creation.
• Legal frameworks for combating online trade of illegal goods and services.
• The enforcement of digital rights management (DRM) technologies.
• Cyber law and online education: Intellectual property and privacy concerns.
• The regulation of social media platforms under cyber law.
• Legal remedies for victims of online identity theft.
• The implications of autonomous vehicles on cyber law.
• Legal strategies to address online child exploitation and protection.
• The impact of telemedicine on health law and cyber law.
• Challenges in enforcing online contracts and resolving disputes.
• Cyber law in the context of national security: Balancing civil liberties.
• Legal frameworks for software development and liability issues.
• The influence of international treaties on national cyber law policies.
• Legal aspects of cyber espionage and state-sponsored cyber attacks.
• Ethical hacking: Legal boundaries and implications.
• The regulation of online gaming: Consumer protection and cyber law.
• Cyber law and digital accessibility: Rights of differently-abled persons.
• Legal implications of biometric data processing in cyber law.
• The future of robotic automation and law: Ethical and legal considerations.
• The role of cyber law in the governance of digital health records.
• Managing online content: Legal issues around censorship and freedom of expression.
• Cyber law implications for digital banking and fintech.
• The effectiveness of international agreements in combating climate change.
• Legal strategies for biodiversity conservation in international and domestic contexts.
• The impact of environmental law on sustainable urban development.
• Comparative analysis of water rights and regulations across different jurisdictions.
• Legal mechanisms for controlling plastic pollution in marine environments.
• The role of environmental impact assessments in promoting sustainable projects.
• Legal and regulatory challenges of renewable energy implementation.
• The effectiveness of air quality laws in reducing urban smog.
• Environmental justice and its impact on marginalized communities.
• The role of the judiciary in shaping environmental policy.
• Corporate accountability for environmental degradation: Legal remedies.
• The regulation of genetically modified organisms (GMOs) and their environmental impact.
• Legal frameworks for the protection of endangered species and habitats.
• Climate refugees: Legal challenges and protections under international law.
• The intersection of environmental law and human rights.
• Challenges in enforcing environmental laws against multinational corporations.
• Legal aspects of carbon trading and emissions reduction schemes.
• The impact of agricultural practices on environmental law and policy.
• Mining and environmental degradation: Legal responses and remedies.
• The use of environmental law to combat deforestation.
• Legal issues related to energy storage and its environmental impacts.
• Regulatory challenges of nanotechnology and environmental health.
• Legal strategies for water management in drought-prone areas.
• The regulation of noise pollution in urban environments.
• The role of public participation in environmental decision-making.
• Legal frameworks for dealing with hazardous waste and its disposal.
• Environmental law as a tool for green building and construction practices.
• Legal challenges in protecting wetlands through environmental laws.
• The enforceability of international environmental law.
• The impact of environmental laws on traditional land use and indigenous rights.
• The role of local governments in environmental governance.
• Environmental law and the regulation of pesticides and chemicals.
• Legal responses to environmental disasters and recovery processes.
• The implications of deep-sea mining for environmental law.
• The role of environmental NGOs in shaping law and policy.
• Legal tools for the conservation of marine biodiversity.
• Challenges of integrating environmental concerns in corporate governance.
• Legal implications of artificial intelligence in environmental monitoring.
• The role of litigation in enforcing environmental norms and standards.
• Trends and challenges in the enforcement of transboundary environmental laws.
• The impact of EU law on national sovereignty of member states.
• Brexit and its legal implications for both the UK and EU.
• The effectiveness of the EU’s data protection regulation (GDPR) in a global context.
• The role of the European Court of Justice in shaping EU policies.
• Legal analysis of the EU’s Common Agricultural Policy (CAP) and its impacts.
• The EU’s approach to antitrust and competition law enforcement.
• Human rights protection under the EU Charter of Fundamental Rights.
• Legal challenges in the implementation of the EU’s Digital Single Market.
• The EU’s role in international trade: Legal frameworks and challenges.
• The influence of EU environmental law on member state legislation.
• Consumer protection laws in the EU and their effectiveness.
• Legal mechanisms of the EU banking union and capital markets union.
• The regulation of pharmaceuticals and healthcare within the EU.
• Migration and asylum laws in the EU: Challenges and responses.
• The role of lobbying in EU lawmaking processes.
• Legal aspects of the EU’s energy policy and its impact on sustainability.
• The enforcement of intellectual property rights within the EU.
• The EU’s legal framework for dealing with cyber security threats.
• Analysis of EU labor laws and their impact on worker mobility.
• Legal bases for EU sanctions and their impact on international relations.
• The EU’s legal strategies against terrorism and organized crime.
• The effectiveness of the EU’s regional development policies.
• Legal and ethical issues in AI regulation within the EU.
• The EU’s approach to regulating blockchain technology.
• The challenges of EU enlargement: Case studies of recent accession countries.
• The role of the EU in global environmental governance.
• The impact of EU laws on the rights of indigenous populations.
• Legal analysis of EU sports law and policy.
• The EU’s framework for consumer digital privacy and security.
• The regulation of biotechnology in agriculture within the EU.
• EU tax law and its implications for global corporations.
• The role of the European Ombudsman in ensuring administrative justice.
• The influence of EU copyright law on digital media and entertainment.
• Legal frameworks for public procurement in the EU.
• The impact of EU maritime law on international shipping and trade.
• EU chemical regulations: REACH and its global implications.
• Legal issues surrounding the EU’s external border control policies.
• The EU’s role in shaping international aviation law.
• The impact of EU law on public health policy and regulation.
• The future of the EU’s constitutional framework and its legal challenges.
• The impact of cultural diversity on family law practices.
• Legal challenges in the enforcement of international child custody agreements.
• The effectiveness of mediation in resolving family disputes.
• The evolution of child support laws in response to changing societal norms.
• Comparative analysis of divorce laws across different jurisdictions.
• Legal implications of surrogacy: Rights of the child, surrogate, and intended parents.
• The impact of social media on family relationships and legal proceedings.
• Legal rights of cohabiting couples: A comparative study.
• The role of family law in addressing domestic violence.
• The legal recognition of LGBTQ+ families in different countries.
• The effect of parental alienation on child custody decisions.
• Adoption laws and the challenges of cross-border adoption.
• Legal issues surrounding elder care and guardianship.
• The role of genetic testing in family law (paternity disputes, inheritance rights).
• The impact of immigration laws on family unification policies.
• The rights of children with disabilities in family law proceedings.
• The influence of religious beliefs on family law decisions.
• The legal challenges of blended families: Rights and responsibilities.
• The role of children’s rights in family law: Voice and protection.
• Legal frameworks for dealing with family assets and financial disputes.
• The impact of addiction (substance abuse, gambling) on family dynamics and legal outcomes.
• The enforcement of prenuptial agreements: A critical analysis.
• Legal responses to teenage pregnancy and parental responsibilities.
• The effect of military service on family law issues (divorce, custody).
• The challenges of maintaining privacy in family law cases.
• The impact of mental health on parental rights and child custody.
• The role of the state in family planning and reproductive rights.
• Comparative study of same-sex marriage laws before and after legalization.
• The evolution of father’s rights in family law.
• The legal complexities of artificial reproductive technologies.
• Family law and its role in preventing child marriages.
• The impact of economic downturns on family law issues (alimony, child support).
• Legal strategies for protecting domestic violence survivors through family law.
• The role of international conventions in shaping family law.
• Gender biases in family law: A critical analysis.
• The regulation of family law advertising and its ethical implications.
• The influence of international human rights law on family law.
• The challenges of transnational families in navigating family law.
• Legal and ethical issues in the involuntary sterilization of disabled individuals.
• The future of family law: Predicting changes in legislation and practice.
• The legal implications of telemedicine and remote healthcare services.
• Regulation and liability of artificial intelligence in healthcare.
• The impact of healthcare laws on patient privacy and data protection.
• Legal issues surrounding the right to die: Euthanasia and assisted suicide.
• The enforcement of mental health legislation and patient rights.
• Legal challenges in the regulation of pharmaceuticals and medical devices.
• The role of health law in managing infectious disease outbreaks, such as COVID-19.
• Ethical and legal considerations of genetic testing and genome editing.
• Comparative analysis of health insurance models and their legal implications.
• The impact of health law on underserved and marginalized populations.
• Legal aspects of medical malpractice and healthcare provider liability.
• The regulation of stem cell research and therapy.
• Legal frameworks for addressing obesity as a public health issue.
• The role of law in combating healthcare fraud and abuse.
• Ethical issues in the allocation of scarce medical resources.
• Legal challenges in child and adolescent health care consent.
• The influence of global health initiatives on national health law policies.
• Legal issues related to the development and use of biobanks.
• Health law and its impact on emergency medical response and preparedness.
• Legal and ethical challenges in the treatment of psychiatric patients.
• The rights of patients in clinical trials: Informed consent and beyond.
• The regulation of medical marijuana and its impact on healthcare systems.
• Health law’s role in addressing non-communicable diseases.
• Legal strategies to combat antimicrobial resistance.
• The legal implications of sports medicine and athlete care.
• The protection of vulnerable groups in healthcare settings.
• Legal frameworks governing organ donation and transplantation.
• The role of health law in reproductive rights and technologies.
• The impact of bioethics on health law policy and practice.
• Legal considerations of global health diplomacy and international health law.
• The regulation of alternative and complementary medicine.
• Legal challenges in providing healthcare in rural and remote areas.
• The impact of nutrition and food law on public health.
• Legal responses to aging populations and elder care.
• Health law and its impact on vaccination policies and enforcement.
• The legal implications of patient literacy and health education.
• Regulatory challenges in health information technology and mobile health apps.
• Legal and ethical issues in cosmetic and elective surgery.
• The role of whistleblowers in improving healthcare quality and safety.
• The legal implications of healthcare marketing and consumer protection.
• The impact of international human rights conventions on domestic laws.
• The role of the International Criminal Court in enforcing human rights standards.
• Legal remedies for victims of war crimes and genocide.
• The enforcement of human rights in areas of conflict and post-conflict societies.
• The legal implications of refugee and asylum seeker policies.
• The right to freedom of expression in the digital age.
• Human rights challenges in the context of global migration.
• Legal protections against discrimination based on gender, race, and sexuality.
• The impact of cultural practices on the enforcement of human rights.
• Legal frameworks for protecting children in armed conflicts.
• The role of non-governmental organizations in promoting and protecting human rights.
• Human rights and environmental law: the right to a healthy environment.
• The legal aspects of economic, social, and cultural rights.
• Protecting the rights of indigenous peoples: international and domestic approaches.
• Human rights implications of counter-terrorism laws and practices.
• The role of national human rights institutions in promoting human rights.
• Legal challenges in combating human trafficking and modern slavery.
• The rights of disabled individuals under international human rights law.
• Legal strategies to combat racial and ethnic profiling.
• The protection of human rights defenders in hostile environments.
• The impact of globalization on labor rights and working conditions.
• The role of the media in promoting human rights awareness and protection.
• Human rights law and its intersection with gender-based violence.
• The right to education and legal measures to enforce it.
• Legal responses to the crisis of statelessness.
• Human rights issues surrounding the management of natural disasters.
• The role of human rights law in regulating private military and security companies.
• The right to privacy in the surveillance era.
• Legal measures to address economic inequality and ensure human rights.
• The challenge of protecting human rights in authoritarian regimes.
• Human rights in medical law: issues of consent and autonomy.
• The right to food and water as fundamental human rights.
• Legal frameworks for the rights of the elderly in different countries.
• The role of human rights law in addressing issues of domestic violence.
• Human rights considerations in the development and enforcement of immigration laws.
• The impact of intellectual property laws on access to medicines.
• The enforcement of the rights of LGBT individuals globally.
• Human rights law and its application to internet governance.
• The legal rights of prisoners and the conditions of detention.
• The role of human rights in shaping international trade and investment policies.
• The impact of immigration laws on national security in various countries.
• Comparative analysis of asylum procedures across different jurisdictions.
• The role of immigration law in shaping multicultural societies.
• Legal challenges faced by refugees and asylum seekers during resettlement.
• The effectiveness of skilled migrant programs and their impact on the economy.
• Legal and ethical considerations in the detention of immigrants.
• The influence of international human rights law on national immigration policies.
• The impact of Brexit on immigration laws in the UK and the EU.
• The role of international agreements in managing migration crises.
• Legal strategies to combat human trafficking within the immigration system.
• The rights of undocumented immigrants and access to legal aid.
• The enforcement of immigration laws and the rights of migrant workers.
• The legal implications of family reunification policies.
• Analysis of deportation procedures and their compliance with international law.
• The effect of climate change on migration patterns and immigration law.
• Legal measures to protect immigrants against labor exploitation.
• The role of local governments in immigration enforcement.
• The legal aspects of border management technologies.
• Immigration law and its impact on education for immigrant children.
• The challenges of integrating immigrants into host societies legally.
• Comparative study of investor immigration programs.
• The effects of cultural bias in immigration law enforcement.
• Legal remedies for immigrants subjected to discrimination.
• The intersection of immigration law and public health policies.
• The legal consequences of overstaying visas on future immigration applications.
• The role of consulates and embassies in the immigration process.
• Legal frameworks for addressing statelessness in the context of immigration.
• Immigration law’s response to temporary protection statuses.
• The impact of international sports events on immigration laws and policies.
• The role of non-governmental organizations in shaping immigration law.
• The use of biometric data in immigration control.
• Legal perspectives on the economic impact of immigration.
• Challenges in protecting the rights of elderly immigrants.
• The influence of immigration on national identity and cultural policies.
• Legal implications of global demographic shifts on immigration policies.
• The regulation of international student visas and their impact on higher education.
• Legal challenges faced by immigrants in accessing healthcare services.
• The dynamics of urban immigration and legal integration strategies.
• Legal issues concerning expatriation and renunciation of citizenship.
• The future of immigration law in the face of global political changes.
• The impact of artificial intelligence on copyright and patent law.
• Comparative analysis of trademark laws in the digital age across different jurisdictions.
• The role of intellectual property rights in fostering or hindering innovation.
• Legal challenges in the protection of software under intellectual property law.
• The enforcement of intellectual property rights in online platforms.
• The balance between intellectual property rights and the public domain.
• The implications of 3D printing technologies on intellectual property rights.
• Intellectual property issues in the music industry: Streaming and digital rights.
• The effectiveness of international intellectual property treaties like WIPO and TRIPS.
• Intellectual property strategies for biotechnological inventions.
• The role of patents in the pharmaceutical industry and access to medicine.
• The impact of intellectual property rights on traditional knowledge and cultural expressions.
• Copyright law and its adaptability to new forms of media like virtual reality.
• The intersection of intellectual property law and competition law.
• Legal frameworks for managing intellectual property in joint ventures and collaborations.
• The role of intellectual property in the fashion industry and combating counterfeits.
• Trademark dilution: A comparative study between the U.S. and EU approaches.
• Legal challenges associated with celebrity rights and their management under IP law.
• Intellectual property rights and their impact on small and medium-sized enterprises.
• The protection of design rights in industrial models and drawings.
• Intellectual property and corporate governance: Policy, compliance, and enforcement.
• The challenges of enforcing intellectual property rights in the global south.
• The evolution of copyright law in protecting digital ebooks and publications.
• Intellectual property law in the advertising industry: Challenges and perspectives.
• Ethical considerations in intellectual property law.
• The role of intellectual property in the development of artificial organs and bioprinting.
• Challenges in patenting genetic material and the moral implications thereof.
• Intellectual property considerations in cross-border mergers and acquisitions.
• Intellectual property rights in the context of augmented reality technologies.
• The role of intellectual property in the semiconductor industry.
• The impact of open-source licensing on intellectual property law.
• Legal issues surrounding the protection of data and databases under intellectual property law.
• The role of intellectual property in sports marketing and merchandise.
• Intellectual property issues in cloud computing and data storage.
• Copyright disputes in the film industry: Case studies and legal insights.
• The protection of plant varieties and agricultural innovation under IP law.
• Intellectual property and its role in promoting or restricting access to educational materials.
• Trade secrets law: Comparative approaches and key challenges.
• The impact of geographical indications on local economies and protection strategies.
• Intellectual property law and its enforcement in the age of the internet of things.
• The effectiveness of the United Nations in resolving international disputes.
• The role of international law in governing the use of force by states.
• Legal frameworks for international cooperation in combating climate change.
• The implications of sovereignty and state responsibility in international law.
• The enforcement of international human rights law in conflict zones.
• Legal strategies for addressing international cybercrime and digital warfare.
• The regulation of international trade under the World Trade Organization (WTO).
• Legal challenges in the management of global migration and refugee crises.
• The impact of international sanctions on global diplomacy and law.
• The legal status and rights of stateless individuals under international law.
• The application of international law in the Antarctic and other common areas.
• The protection of cultural heritage in times of war under international law.
• The role of international courts and tribunals in enforcing maritime law.
• Comparative analysis of regional human rights mechanisms (e.g., European, African, American).
• The jurisdiction and reach of the International Criminal Court (ICC).
• The legal implications of territorial disputes on international relations.
• The influence of international law on national legislation regarding environmental protection.
• The legal treatment of indigenous peoples’ rights at the international level.
• The development of international norms for corporate social responsibility.
• Legal and ethical considerations in international medical research and healthcare.
• The regulation of international finance and its impact on economic development.
• The challenges of enforcing intellectual property rights at the international level.
• The legal frameworks governing the use and regulation of drones in international airspace.
• The impact of bilateral and multilateral treaties on domestic legal systems.
• International legal standards for the treatment of prisoners and detainees.
• The role of diplomatic immunity in contemporary international law.
• Legal issues surrounding international sports events and the governance of international sports bodies.
• The use of international law in combating terrorism and protecting national security.
• Legal measures against international trafficking of drugs, arms, and human beings.
• The role of non-state actors in international law (NGOs, multinational corporations, etc.).
• Legal considerations in the preservation of biodiversity under international conventions.
• The international legal ramifications of artificial islands and reclaimed territories.
• The dynamics of negotiation and implementation of international peace treaties.
• The intersection of international law and global public health policies.
• The legal challenges in regulating outer space activities and celestial bodies.
• The enforcement of international labor standards and their impact on global trade.
• Legal implications of global electronic surveillance by states.
• The regulation of international nuclear energy and nuclear weapons.
• The role of international law in addressing issues of global poverty and inequality.
• The future of international law in a multipolar world order.
• The impact of globalization on labor rights and standards.
• Legal challenges and protections for gig economy workers.
• Comparative analysis of minimum wage laws across different jurisdictions.
• The role of trade unions in modern labor markets.
• Legal frameworks governing telecommuting and remote work arrangements.
• Enforcement of anti-discrimination laws in the workplace.
• The impact of artificial intelligence and automation on labor laws.
• Legal protections for migrant workers in host countries.
• The effectiveness of occupational safety and health regulations.
• The role of labor law in managing economic crises and labor market shocks.
• Gender equality in the workplace: Assessing legal approaches.
• The regulation of child labor in developing economies.
• Legal implications of employee surveillance practices.
• Rights and legal protections for part-time, temporary, and seasonal workers.
• Collective bargaining challenges in the public sector.
• The legal status of unpaid internships and volunteer work.
• Legal responses to workplace bullying and psychological harassment.
• The enforceability of non-compete clauses in employment contracts.
• Legal issues related to employee benefits and pensions.
• The impact of labor laws on small businesses and startups.
• Labor rights in the informal economy.
• Legal strategies for conflict resolution in labor disputes.
• The influence of international labor standards on national laws.
• The role of labor law in promoting sustainable employment practices.
• The effectiveness of mediation and arbitration in labor disputes.
• Legal protections against wrongful termination.
• The challenges of enforcing fair labor practices across multinational corporations.
• The rights of disabled workers under labor law.
• Labor law and its adaptation to the changing nature of work.
• The regulation of labor in industries with high risk of exploitation (e.g., textiles, mining).
• The impact of labor law on industrial relations in the healthcare sector.
• Legal aspects of wage theft and its enforcement.
• Labor laws related to shift work and overtime regulations.
• The legal consequences of labor strikes and lockouts.
• Employee privacy rights versus employer’s right to monitor.
• The role of labor law in economic development and poverty reduction.
• Legal frameworks for employee representation in corporate governance.
• The challenges of labor law compliance in the retail sector.
• Labor law issues in the entertainment and sports industries.
• Future trends in labor law: Anticipating changes in legislation and workplace norms.
• The ethical implications of attorney-client confidentiality.
• Ethical challenges in pro bono legal work.
• The role of personal morality in legal judgments.
• Ethical dilemmas faced by defense attorneys in criminal cases.
• The influence of ethics on legal decision-making processes.
• Conflicts of interest in legal practice: Identification and management.
• Ethical considerations in legal advertising and client solicitation.
• The impact of technology on ethical practices in law.
• Ethical issues in the representation of minors and incapacitated clients.
• The enforcement of ethical standards in the judiciary.
• Ethical challenges in corporate legal departments.
• The ethics of legal outsourcing and the use of non-lawyers.
• Ethical considerations in mediation and alternative dispute resolution.
• The implications of ethical misconduct on legal careers.
• The duty of lawyers to the court vs. client loyalty.
• Ethical issues in cross-border legal practices.
• The responsibility of lawyers in preventing money laundering.
• The ethical dimensions of legal education and training.
• The balance between justice and efficiency in legal ethics.
• Ethical considerations in the use of artificial intelligence in law.
• The ethics of plea bargaining and its impact on justice.
• Ethical issues in the management of legal trusts and estates.
• The role of ethics in environmental law.
• Professional responsibility in managing legal errors and omissions.
• Ethical dilemmas in bankruptcy law.
• The impact of personal ethics on public interest law.
• Ethical considerations in the competitive practices of law firms.
• Ethics in legal research: Ensuring accuracy and integrity.
• The moral obligations of lawyers in promoting human rights.
• The ethics of lawyer activism in political and social movements.
• Challenges of maintaining ethical standards in high-pressure legal environments.
• Ethical issues in the intersection of law and politics.
• The professional ethics of tax lawyers.
• Ethical challenges in the prosecution of complex financial crimes.
• The ethical dimensions of elder law and representation of the elderly.
• The role of moral philosophy in legal ethics curricula.
• Ethical considerations in capital punishment cases.
• Lawyers’ ethical responsibilities in handling classified information.
• The impact of ethical lapses in corporate scandals.
• Future directions in legal ethics: Preparing lawyers for emerging moral challenges.
• The legal frameworks governing international maritime boundaries.
• Liability issues in the event of oil spills and maritime environmental disasters.
• The regulation of piracy under international maritime law.
• Legal challenges in the Arctic maritime routes and territorial claims.
• The effectiveness of maritime safety regulations in preventing accidents at sea.
• Legal aspects of maritime insurance: Coverage, claims, and disputes.
• The role of the International Maritime Organization (IMO) in global shipping regulations.
• Arbitration and dispute resolution in international maritime contracts.
• Legal implications of autonomous ships on international maritime law.
• The enforcement of maritime security measures against terrorism.
• Ship registration and flag state responsibilities under international law.
• The impact of climate change on maritime boundaries and fishing rights.
• Legal strategies for combating illegal, unreported, and unregulated (IUU) fishing.
• Maritime lien and ship arrest procedures across different jurisdictions.
• The regulation of crew rights and labor conditions aboard international vessels.
• Comparative analysis of salvage law and the law of finds.
• Legal issues surrounding the abandonment of ships.
• Port state control and its impact on international shipping.
• The rights and legal protection of seafarers under international maritime law.
• The application of maritime law to underwater cultural heritage.
• The challenges of enforcing maritime law in high seas governance.
• Legal frameworks for the management of maritime natural resources.
• Collision regulations and legal liability at sea.
• The impact of technology on maritime law: Satellite and GPS issues.
• The legalities involved in the financing and construction of vessels.
• Legal issues related to maritime transport of hazardous and noxious substances.
• The role of maritime law in the global supply chain and logistics.
• Legal implications of maritime blockades during armed conflict.
• The interface between maritime law and marine biodiversity conservation.
• The legality of maritime security operations by private companies.
• Insurance law as applicable to maritime piracy and armed robbery.
• The regulation of the international cruise industry under maritime law.
• Challenges in maritime jurisdiction: Enforcement and compliance issues.
• Legal aspects of maritime cybersecurity threats and data protection.
• The impact of maritime law on the offshore oil and gas industry.
• Legal issues in maritime search and rescue operations.
• The role of national courts in maritime law enforcement.
• Trends in maritime law: Emerging issues and future directions.
• Maritime law and its adaptation to the shipping of liquefied natural gas (LNG).
• The influence of maritime law on international maritime education and training.
• Legal challenges posed by digital media platforms to traditional copyright laws.
• The impact of social media on privacy rights and legal implications.
• Regulation of fake news and misinformation: Legal frameworks and effectiveness.
• Legal aspects of media censorship in authoritarian regimes.
• The role of media law in protecting journalistic sources and whistleblowers.
• Copyright infringement in the digital age: Streaming services and legal responses.
• Legal standards for advertising and marketing in digital and traditional media.
• The influence of media law on freedom of expression and public discourse.
• The right to be forgotten in the age of the internet: Legal and ethical considerations.
• Defamation law in the digital era: Challenges and new developments.
• Legal responses to cyberbullying and online harassment through media platforms.
• Intellectual property rights in the creation and distribution of digital content.
• Legal issues surrounding user-generated content on online platforms.
• The role of the Federal Communications Commission (FCC) in regulating broadcast media.
• Legal frameworks for handling sensitive content: Violence, sexuality, and hate speech.
• The regulation of political advertising and its impact on elections.
• The legal implications of artificial intelligence in content creation.
• Data protection laws and their enforcement on media platforms.
• The balance between national security and press freedom.
• Legal strategies for combating deepfake technology and its implications.
• Media ownership laws and their impact on media diversity and pluralism.
• The enforcement of media ethics and law in the age of global digital platforms.
• Legal challenges in cross-border media operations and jurisdictional issues.
• The role of legal frameworks in managing public relations crises.
• The impact of telecommunications law on media dissemination and access.
• Legal considerations for media mergers and acquisitions.
• Regulation of satellite and cable TV in the digital landscape.
• Legal issues related to podcasting and other emerging media formats.
• The protection of minors in media consumption: Legal frameworks and challenges.
• The legal ramifications of media during public health emergencies.
• Accessibility laws related to media content for persons with disabilities.
• The role of the law in combating racial and gender stereotypes in media.
• Media law and consumer protection: Misleading advertisements and consumer rights.
• The impact of GDPR and other privacy regulations on media operations in Europe.
• The legal implications of virtual and augmented reality technologies in media.
• Legal disputes involving music licensing and rights management.
• The challenges of regulating live streaming services under existing media laws.
• Legal issues surrounding the archiving of digital media content.
• The intersection of media law and sports broadcasting rights.
• Future trends in media law: Preparing for new challenges in media and communication technologies.
• Comparative analysis of property rights and land tenure systems across different cultures.
• The impact of eminent domain on property rights and fair compensation.
• Legal challenges in the administration of estates and trusts.
• Intellectual property rights in the digital age: Balancing creators’ rights and public access.
• The role of property law in environmental conservation.
• Legal frameworks governing the leasing and renting of property.
• The evolution of property rights in response to urbanization.
• Property disputes and their resolution: Case studies from land courts.
• The effect of zoning laws on property development and urban planning.
• Legal aspects of real estate transactions and the role of property lawyers.
• Property law and its impact on economic development in emerging markets.
• Legal challenges of property ownership in communal and indigenous lands.
• The influence of property law on agricultural practices and rural development.
• Legal responses to squatting and adverse possession.
• Property rights in marital and family law contexts.
• The implications of blockchain technology on property transactions and record keeping.
• Legal and ethical considerations in the foreclosure process.
• Water rights and property law: Managing conflicts and ensuring sustainability.
• The impact of natural disasters on property law and homeowner rights.
• Property rights and the challenges of gentrification in urban areas.
• Legal considerations in the conversion of property for commercial use.
• The implications of property law for renewable energy projects (e.g., wind farms, solar panels).
• Historical perspectives on property law and their modern-day relevance.
• The regulation of property within gated communities and homeowners associations.
• Legal issues related to the inheritance of digital assets.
• The role of property law in resolving boundary disputes.
• Property law and the regulation of timeshares and vacation ownership.
• The intersection of property law and bankruptcy proceedings.
• Legal frameworks for managing property during divorce or separation.
• Property rights and the management of shared or common resources.
• Legal challenges in property transactions involving foreign investors.
• Property law in the context of historic preservation and cultural heritage.
• Regulatory issues surrounding the development of commercial properties.
• The role of property law in the sharing economy (e.g., Airbnb, Uber).
• Legal issues in property development and construction.
• The impact of tax law on property ownership and transfer.
• Property law and its implications for homelessness and affordable housing.
• Legal approaches to combating land degradation and promoting sustainable use.
• The role of artificial intelligence and technology in property law enforcement.
• Future trends in property law: Predicting changes and legal needs.
• The role of international law in managing global pandemics and health emergencies.
• Legal frameworks governing the use of force and intervention by states.
• The effectiveness of international sanctions as a tool of diplomacy.
• The implications of sovereignty in the digital age for international law.
• The enforcement mechanisms of international human rights law.
• The legal challenges of climate change negotiations and treaty implementation.
• The jurisdiction and effectiveness of the International Criminal Court (ICC).
• The role of international law in governing outer space activities.
• Legal issues related to the protection of refugees and stateless persons.
• The development and enforcement of international environmental law.
• The impact of international law on maritime disputes and ocean governance.
• The legal basis and implications of unilateral declarations of independence.
• Legal strategies to combat international terrorism within the framework of public international law.
• The role of soft law in international relations and its legal significance.
• International legal aspects of economic sanctions and their impact on trade.
• The resolution of territorial disputes through international courts and tribunals.
• The regulation of armed conflict and the laws of war.
• International law and the regulation of cyberspace and cybersecurity.
• The legal challenges and implications of artificial intelligence on international norms.
• The enforcement of international anti-corruption measures.
• The role of international organizations in global governance.
• Legal issues surrounding the management of international waters.
• The impact of cultural heritage protection under international law.
• International legal standards for labor and their enforcement.
• The relationship between international law and indigenous rights.
• The influence of global financial regulations on international law.
• The compatibility of regional trade agreements with the World Trade Organization (WTO) law.
• Legal protections for investors under international investment agreements.
• International law and its role in addressing global inequality.
• The legal challenges of managing international migration.
• The application of international law in diplomatic relations.
• International legal considerations in the disposal of hazardous wastes.
• The role of public international law in combating human trafficking.
• Legal frameworks for international cooperation in disaster relief and emergency response.
• International law and the challenges of sustainable development.
• The regulation of non-governmental organizations (NGOs) under international law.
• Legal issues surrounding global telecommunications regulations.
• International law and the use of drones in warfare and surveillance.
• The implications of emerging technologies on arms control agreements.
• The future of public international law in a multipolar world.
• Legal implications of doping in sports: An international perspective.
• The enforceability of sports contracts: Analysis of player agreements.
• Intellectual property rights in sports: Branding, trademarks, and image rights.
• Legal aspects of sports broadcasting rights in the digital age.
• The role of arbitration in resolving sports disputes.
• Gender equality in sports: Legal challenges and advancements.
• Legal issues surrounding the organization of international sporting events.
• Sports governance: The impact of legal structures on global sports bodies.
• The application of labor laws to professional athletes and sports leagues.
• The protection of minors in professional sports.
• Anti-discrimination laws and their enforcement in sports.
• Legal considerations in the commercialization of sports.
• Sports injury and liability: The role of law in protecting athletes.
• Ethical and legal considerations in sports betting and gambling.
• The implications of technological advancements on sports law (e.g., VAR, goal-line technology).
• Contract negotiation and dispute resolution in sports.
• The impact of COVID-19 on sports contracts and legal liabilities.
• Legal issues in e-sports: Regulation and recognition.
• Ownership rights and financial regulations in sports clubs.
• Privacy laws and their application to athletes’ personal data.
• The legal framework for anti-doping regulations across different sports.
• The role of sports agents: Legal responsibilities and ethical considerations.
• Disability sports and legal challenges in inclusivity.
• Sports tourism and the law: Legal issues in hosting international events.
• Legal challenges in sports marketing and sponsorship agreements.
• The regulation of sports medicine and legal liabilities.
• The role of national courts in sports law.
• Safeguarding child athletes: Legal obligations and policies.
• The legality of sanctions in sports: Case studies from football and athletics.
• The intersection of sports law and human rights.
• Sports law in collegiate athletics: Compliance and regulation.
• The regulation of violent conduct in sports.
• Legal issues surrounding the use of performance-enhancing technology.
• Sports, media rights, and freedom of expression.
• Legal challenges in managing sports facilities and event safety.
• The impact of sports law on international relations.
• Sports law and the challenge of match-fixing.
• The role of international sports law in the Olympic Movement.
• The governance of water sports and maritime law intersections.
• Future trends in sports law: Emerging issues and legal needs.
• Comparative analysis of international tax treaties and their impact on global trade.
• The legality of digital taxation and its implications for multinational corporations.
• Legal challenges in implementing a global minimum tax for corporations.
• The role of tax law in economic development and foreign direct investment.
• Tax evasion and avoidance: Legal frameworks and enforcement mechanisms.
• The impact of tax incentives on renewable energy investments.
• Estate and inheritance tax laws: A comparative study.
• The effectiveness of VAT systems in developing economies.
• Legal issues surrounding tax havens and offshore financial centers.
• The application of tax laws to cryptocurrencies and blockchain technology.
• The role of taxation in public health policy (e.g., taxes on sugary drinks, tobacco).
• Taxation of the gig economy: Challenges and policy options.
• Legal frameworks governing charitable giving and tax deductions.
• The implications of property tax laws on urban development.
• Transfer pricing regulations and their impact on international business operations.
• The enforcement of sales taxes in the e-commerce sector.
• Tax compliance burdens for small and medium-sized enterprises.
• The legal aspects of tax reforms and policy changes.
• Taxation and privacy: Legal issues in the collection and sharing of taxpayer information.
• Comparative analysis of capital gains tax regulations.
• The role of artificial intelligence in tax administration and compliance.
• The legal challenges of implementing environmental taxes.
• Tax disputes and litigation: Strategies and outcomes.
• The regulation and taxation of financial derivatives.
• Tax law and its impact on charitable organizations and non-profits.
• The interplay between tax law and bankruptcy law.
• Legal strategies used by states to combat tax avoidance and profit shifting.
• The influence of tax policy on housing markets.
• Legal implications of tax credits for family and dependents.
• Taxation of expatriates and non-resident citizens.
• The constitutionality of tax laws and challenges in the courts.
• Tax law as a tool for social equity and redistribution.
• The impact of tax laws on consumer behavior.
• Taxation in the digital media and entertainment industries.
• The role of tax law in regulating pensions and retirement savings.
• Tax policy and its effect on agricultural practices and land use.
• The challenges of harmonizing state and federal tax laws.
• Tax law and the regulation of the sports industry.
• The taxation of international shipping and maritime activities.
• Future trends in tax law: Anticipating changes in global tax policies.

We hope this extensive collection of law thesis topics sparks your intellectual curiosity and aids in pinpointing a subject that resonates with your academic interests and career aspirations. Each topic presented here has been chosen to challenge your understanding and to encourage a deeper exploration of the legal landscape. As you prepare to embark on your thesis journey, consider these topics not just as mere titles, but as gateways to developing a nuanced understanding of the law in various contexts. Utilize this resource to craft a thesis that not only fulfills your academic requirements but also contributes meaningfully to the discourse in your chosen area of law.

The Range of Law Thesis Topics

Exploring the vast expanse of law thesis topics provides a unique opportunity for law students to delve into specific legal issues, refine their understanding, and contribute to the ongoing development of legal scholarship. As students embark on this crucial phase of their academic journey, selecting the right thesis topic is essential. This article aims to illuminate the range of potential law thesis topics, highlighting current issues, recent trends, and future directions. By examining these topics, students can better understand the legal landscape’s complexities and identify areas where they can make a significant academic impact.

Current Issues in Law

As we navigate through the complexities of contemporary society, numerous current issues in law emerge that are critical for law students to explore in their theses. These topics not only reflect ongoing legal challenges but also set the stage for developing effective solutions that uphold justice and societal norms. Delving into these law thesis topics allows students to engage with live issues that impact various facets of the legal system, from privacy laws and civil rights to corporate governance and environmental regulations.

• Privacy and Data Protection: In today’s digital age, the issue of privacy and data protection has come to the forefront. With the proliferation of digital data, the legal frameworks designed to protect personal information are constantly tested. Law students could explore the adequacy of existing laws like the General Data Protection Regulation (GDPR) in the European Union and the California Consumer Privacy Act (CCPA) in the United States, considering the rapid advancements in technology and the increasing global nature of data processing.
• Civil Rights in the Modern Era: As societies evolve, so too do their understandings and implementations of civil rights. Current legal discussions often focus on issues such as police brutality, LGBTQ+ rights, and the protections afforded to individuals under new healthcare regulations. Thesis topics may examine how legal responses are adapting in light of these challenges, particularly in terms of legislative and judicial actions intended to protect marginalized groups.
• Corporate Compliance and Governance: With the global economy becoming more interconnected, the importance of corporate compliance and governance has been magnified. Law thesis topics could investigate how businesses are expected to operate ethically while maximizing shareholder value, especially in industries that have significant impacts on the environment or human rights. Additionally, the legal liabilities of corporate officers and directors for breaches of fiduciary duties remain a hot topic in legal research.
• Environmental Law and Climate Change: Environmental law continues to be a pressing area of legal concern as the effects of climate change become more evident. Law students can explore topics related to the enforcement of environmental regulations, the role of international treaties in combating global warming, and the legal responsibilities of nations and corporations in ensuring sustainability. The recent shifts towards renewable energy sources and their legal implications offer a rich field for exploration.
• Immigration Law: Immigration law remains at the forefront of political and legal debates in many countries. Thesis topics could address the legality of border enforcement practices, the rights of refugees and asylum seekers, and the impact of new immigration policies on families and communities. Additionally, the intersection of immigration law with human rights provides a compelling area for legal research and discussion.
• Intellectual Property in the Innovation Economy: As innovation drives economic growth, intellectual property (IP) law plays a crucial role in protecting inventions, brands, and creative works. However, the tension between IP protection and the public interest, particularly in the pharmaceutical industry and technology sector, presents a complex scenario for legal analysis. Law students might explore the balance between encouraging innovation through patents and copyrights and ensuring public access to essential medicines and technologies.

Each of these areas presents unique challenges and opportunities for law students to contribute to their fields through rigorous analysis and innovative thinking. Addressing these current issues in law not only enhances their academic portfolio but also prepares them to enter the legal profession with a comprehensive understanding of the issues at the forefront of legal practice today. By focusing on these law thesis topics, students can position themselves at the cutting edge of legal research and development.

Recent Trends in Law

The dynamic nature of legal systems worldwide ensures that the landscape of law is perpetually evolving. Recent trends in law have been shaped by technological advancements, societal shifts, and global events that have prompted significant legal developments and debates. These trends provide fertile ground for law thesis topics, offering students a chance to explore the cutting-edge issues that are shaping modern legal doctrines and practices.

• Technology and Law: One of the most pervasive influences on recent legal trends is technology. From the rise of fintech and blockchain technology affecting financial regulations to the challenges posed by artificial intelligence in privacy and intellectual property law, technology is reshaping legal boundaries. Law students could examine topics such as the regulation of autonomous vehicles, legal responses to cybersecurity threats, or the implications of AI in criminal justice systems, including predictive policing and decision-making algorithms.
• Global Health and Law: The COVID-19 pandemic has highlighted the critical role of health law on a global scale. Recent legal trends have focused on public health law’s response to pandemics, including emergency powers, vaccination mandates, and quarantine measures. Thesis topics might analyze the balance between individual rights and public health safety, the legal implications of global vaccine distribution, or the role of the World Health Organization in shaping international health regulations.
• International Trade and Law: Recent shifts in international trade agreements and policies, such as Brexit and changes in the United States’ trade policies, have significant legal implications. Law students have the opportunity to delve into issues surrounding trade negotiations, tariffs, and the role of international bodies like the World Trade Organization in mediating global trade disputes. Additionally, the rise of protectionist policies and their legal ramifications offers a rich area for scholarly investigation.
• Social Justice and Law: Recent years have seen a marked increase in legal initiatives focused on social justice, including movements towards criminal justice reform, police accountability, and the decriminalization of certain activities. Law thesis topics could explore the legal frameworks surrounding prison reform, the abolition of cash bail systems, or the legalization of cannabis and its social, economic, and legal impacts.
• Environmental and Energy Law: With the urgent need for environmental sustainability, recent legal trends have increasingly focused on environmental and energy law. Topics for exploration include the transition to renewable energy sources, legal strategies for reducing carbon footprints, and the enforcement of international environmental agreements like the Paris Accord. Law students could also investigate the legal aspects of green technology patents and their role in promoting eco-friendly innovations.
• Corporate Responsibility and Ethics: There is a growing trend towards ensuring that corporations operate more transparently and ethically, particularly in relation to environmental, social, and governance (ESG) criteria. This shift has led to new regulations and legal standards, offering thesis topics on corporate governance reforms, the legal liabilities of ignoring climate change impacts, and the integration of corporate social responsibility into business operations.

These recent trends in law reflect a world where legal systems are rapidly adapting to external changes and internal pressures. For law students, engaging with these law thesis topics not only provides an opportunity to contribute to scholarly discourse but also to influence future legal practices and policies. As these trends continue to evolve, they will undoubtedly shape the legal landscape for years to come, providing ongoing opportunities for impactful legal research.

Future Directions in Law

The legal landscape is continually evolving, driven by shifts in technology, societal norms, and global dynamics. Identifying and understanding future directions in law is crucial for law students as they consider thesis topics that not only address current legal challenges but also anticipate upcoming legal trends. This exploration provides insights into potential legal reforms, the emergence of new legal fields, and the adaptation of law to future societal needs.

• The Expansion of Cyber Law: As digital technology becomes even more integrated into daily life, the future of law will increasingly hinge on addressing cyber-related issues. Future law thesis topics might explore regulations for the Internet of Things (IoT), legal responses to virtual realities, and the implications of quantum computing on data security and encryption. Additionally, the legalities of digital personhood and AI’s rights and responsibilities will challenge traditional legal frameworks and require innovative legal thinking.
• Climate Change Legislation: Climate change continues to be an urgent global issue, necessitating robust legal frameworks that promote environmental sustainability and mitigate harm. Future legal scholars might focus on international climate agreements, the development of national laws that enforce global climate goals, and the legal responsibilities of countries and corporations in reducing their carbon footprint. The role of law in promoting green technologies and sustainable urban planning will also be critical areas for research.
• Global Legal Cooperation: In an interconnected world, the future of law lies in global cooperation, particularly in areas like human rights, international trade, and public health. Law students could examine the potential for new international treaties, the evolution of supranational legal institutions, and the ways legal systems can work together to address issues such as migration, pandemics, and international crime.
• Legal Implications of Biotechnology: As biotechnological advancements continue, so too will their legal implications. Future thesis topics may include the regulation of genetic editing techniques, bioethics, bioprinting of human organs, and the patenting of biotechnological inventions. The balance between innovation and ethical considerations will be a significant focus, as will the protection of genetic data.
• Reforming Justice Systems: There is an ongoing need for justice system reform, particularly concerning equity, efficiency, and accessibility. Future directions in law could involve examining alternative dispute resolution mechanisms, the decriminalization of certain offenses, and reforms in sentencing practices. Additionally, the adoption of technology in the justice system, such as virtual courtrooms and AI in legal decision-making, presents both opportunities and challenges.
• The Future of Labor Law: The nature of work and the workplace is changing rapidly, prompted by technology and evolving business models. Future law thesis topics might include the legal status and rights of gig economy workers, the use of AI in workplace management, and the implications of remote work for labor law. Legal scholars will need to consider how labor laws can adapt to continue protecting workers’ rights in this new landscape.
• Protecting Rights in a Digital World: As personal and societal activities increasingly move online, protecting individual rights becomes more complex and essential. Future legal research could focus on digital identity, the right to digital privacy, and freedom of expression online. Legal frameworks will need to evolve to protect these rights adequately while balancing them against national security concerns and societal norms.

These future directions in law offer a glimpse into the potential challenges and areas of growth for the legal profession. For law students, engaging with these topics not only helps push the boundaries of current legal thought but also prepares them to play an active role in shaping the future of the legal landscape.

The exploration of law thesis topics is more than an academic requirement; it’s a chance to engage deeply with the legal issues that shape our society and influence our daily lives. As we have seen, the scope of potential topics spans from traditional legal analyses to emerging legal challenges brought about by technological and social changes. Whether addressing longstanding issues or anticipating future legal shifts, students equipped with the right thesis topic can contribute meaningfully to the discourse within their chosen field. Encouragingly, the breadth of law thesis topics offers endless possibilities for investigation and innovation, promising a rich tapestry of legal knowledge that will evolve with the changing world.

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Dutch insolvency law: An overview

• Contracts and networks
• Banking, finance and insolvency
• Private Business and Labour Law

Research output : Contribution to journal › Article › Scientific › peer-review

Fingerprint

• Dutch Keyphrases 100%
• Insolvency Law Keyphrases 100%
• Bankruptcy Economics, Econometrics and Finance 100%
• Restructuring Economics, Econometrics and Finance 100%
• Dutch Company Keyphrases 50%
• Creditors Keyphrases 50%
• Bankrupt Keyphrases 50%
• Restructuring Process Keyphrases 50%

Projects per year

Connecting Organizations

Bekker, S. (Researcher), Bomer, A. (Researcher), Borghouts, I. (Researcher), De Pietro, C. (Researcher), Dusarduijn, S. (Researcher), Elsweier, F. (Researcher), Essers, P. (Researcher), Garcia Anton, R. (Researcher), Gribnau, H. (Researcher), Gubbels, N. (Researcher), Hoogeveen, M. (Researcher), Houwerzijl, M. (Researcher), Kaufmann, W. (Researcher), Kemmeren, E. (Researcher), Lafarre, A. (Principal Investigator), Lejour, A. (Researcher), Li, J. (Researcher), Loth, M. (Researcher), Mc Cahery, J. (Researcher), Montebovi, S. (Researcher), Peters, C. (Researcher), Rombouts, B. (Researcher), Russo, R. (Researcher), Staats, G. (Researcher), Starink, B. (Researcher), Steegmans, M. (Researcher), Stevens, S. (Researcher), Stevens, T. (Researcher), Sumner, I. (Researcher), Tjong Tjin Tai, E. (Researcher), Tzankova, I. (Researcher), Verbruggen, P. (Researcher), Vermeulen, E. (Researcher), Westerhout, E. (Researcher), Weterings, W. (Researcher), Wibier, R. (Researcher), Xu, D. (Researcher), Zegveld, C. (Researcher), Zekić, N. (Researcher), van Gulijk, S. (Researcher), van Hout, D. (Researcher), van Hulten, M. (Researcher), van Kempen, T. (Researcher), van Kesteren, H. (Researcher), van Vijfeijken, I. (Researcher), van der Elst, C. (Researcher), van der Sangen, G. (Researcher), Öner, C. (Researcher), Kryla-Cudna, K. (Researcher), Mak, V. (Researcher), Smit, D. (Researcher), Op Heij, D. (Researcher), Onţanu, E. A. (Researcher), Salah, O. (Researcher), Wijntjens, L. (Researcher), van Norden, G.-J. (Researcher), Vereijken-van den Bosch, S. (Researcher), Fernandez de Aranguiz Chueca, A. (Researcher), Diamant, Y. (Researcher), Geiregat, S. (Researcher), van der Burgt, B. (Researcher), Hofman, A. (Researcher) & Groeneveld-Tijssens, N. (Researcher)

1/01/19 → 31/12/23

Project : Research project

• Taxation 100%
• Netherlands 60%
• International Instruments 30%

T1 - Dutch insolvency law

T2 - An overview

AU - Wibier, Reinout

N2 - Reviews the development of Dutch company insolvency law and its key features. Examines the requirements for a bankruptcy petition, the main participants, the treatment of a bankrupt's estate and of executory contracts, and the order of distribution. Details the position of secured creditors and pre-insolvency creditors, the role of set-off, the requirements for showing fraudulent preference, and the conduct of restructuring proceedings.

AB - Reviews the development of Dutch company insolvency law and its key features. Examines the requirements for a bankruptcy petition, the main participants, the treatment of a bankrupt's estate and of executory contracts, and the order of distribution. Details the position of secured creditors and pre-insolvency creditors, the role of set-off, the requirements for showing fraudulent preference, and the conduct of restructuring proceedings.

M3 - Article

SN - 0267-937X

JO - Journal of International Banking Law and Regulation

JF - Journal of International Banking Law and Regulation