What Can We Expect to Gain from Reforming the Insolvent Trading Remedy?

Williams, Richard

doi:10.1111/1468-2230.12106

Cited by 9 publications

(3 citation statements)

References 23 publications

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“…106 Given the high number of liquidations in the years between the enactment of section 214 and the present, the 12 cases of liability across Bands 2-5 (Figure 4b) does appear to be relatively low, but we must take into account the relatively low number of proceedings instituted. 107 The low number of cases commenced is surprising given the high numbers of liquidations in 102 For example, see D Prentice, 'Creditors' Interests and Director's Duties ' (1990) 10 OJLS 265, 277;F Oditah, 'Wrongful Trading' [1990] LMCLQ 205, 222. 103 For example, see R Schulte, 'Enforcing wrongful trading as a standard of conduct for directors and a remedy for creditors: the special case of corporate insolvency' (1999) 20 Company Lawyer 80, 81 the past 30 years.…”

Section: Reasons For Increased Liability Related To Particular Causes Of Actionmentioning

confidence: 99%

Business judgment and director accountability: a study of case-law over time

McNulty

Stewart

Keay

et al. 2019

Journal of Corporate Law Studies

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It is often assumed that judges are reluctant to review directors' business judgments, which contributes to a lack of director accountability, particularly in large companies. This claim has never been systematically interrogated. This paper therefore analyses English and Welsh cases to ascertain whether judges do review and impose liability for directors' judgments, whether this has altered from the mid-nineteenth century until the present, or varies by cause of action, and what types of company or claimant are involved. It finds that challenges to business judgment have been successful over the whole time period, with a marked increase in legal liability since 2007. This cannot be linked to changes in substantive law, but probably a greater willingness by claimants in insolvent companies to mount challenges to business judgment. Nevertheless liability levels remain low, and largely confined to private companies.

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Section: Reasons For Increased Liability Related To Particular Causes Of Actionmentioning

confidence: 99%

Business judgment and director accountability: a study of case-law over time

McNulty

Stewart

Keay

et al. 2019

Journal of Corporate Law Studies

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“…In this paper the term 'vicinity of insolvency' is used exclusively to define the status of the company's financial distress when a director might still have reasonable hope for the company's financial recovery in the future. 8 Taylor (2018), p 173; Williams (2015), p 56; Keay (2005), pp 433-434. to preserve some value for themselves. 9 The rules on a director's liability serve to counterbalance this gamble.…”

Section: Introductionmentioning

confidence: 99%

Civil Liability of a Company Director in the Vicinity of Insolvency: The Lithuanian Approach

Bitė

Mogenytė

Mulevičienė

2022

Eur Bus Org Law Rev

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Little has been achieved at the EU level and internationally to harmonise the various approaches taken by national laws regarding the nature and extent of directors’ obligations in the vicinity of insolvency. The first steps towards harmonisation can be seen in the Restructuring Directive, which aims to provide initial guidance on the duties of directors where there is a likelihood of insolvency. Lithuania is one of the countries which has most recently implemented a comprehensive insolvency reform, trying to better conform to the modern realities of business and promote the corporate rescue paradigm through the national legal regime. The new Law on Insolvency of Legal Persons introduced a range of changes that directly and indirectly impact the director’s civil liability approach. The aim of this paper is to provide comprehensive insights from a comparative perspective on the Lithuanian approach to the regime of a director’s civil liability in the vicinity of insolvency through an analysis of the conditions and sources of such liability in the context of the new legal regime of insolvency. The paper discusses the general features and doctrine of the legal regime regarding a director’s civil liability in Lithuania. Secondly, it sets out the types of insolvency-related duties of directors, analyses the current state of harmonisation at the EU level in that regard, and then discusses the Lithuanian approach. Finally, it determines the main factors influencing the future of the legal regime of a director’s liability, including the reactions of the legislators to the COVID-19 outbreak.

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“…Through the covenants, lenders can monitor firm performance and, at an early sign of distress, can bring management to the table, control its risk-taking behaviour and, 38 Williams (2015). 39 Company Directors' Disqualification Act 1986, s. 7.…”

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confidence: 99%

The Paradox of Alignment: Agency Problems and Debt Restructuring

Paterson

2016

Eur Bus Org Law Rev

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Traditional agency theory predicts that when a large company is trading solvently, shareholders will align their interests with those of the directors, but that this may also mean that when the company is financially distressed, directors will prefer shareholder interests to those of the creditors (even if there is no residual value for the shareholders in the company). Both the law and the market respond to this problem, and to date the situation has been held in some sort of approximate balance. However, this article examines the consequences of alignment of shareholder and director interests when a large private equity company is in financial distress, in light of the debt restructuring which is likely to be in contemplation and the type of director who is often retained. It argues that in these cases directors may have an incentive to support creditors' debt restructuring plans, and, paradoxically, the closer the alignment of their interests and those of the shareholders when the company is trading solvently, the greater this incentive to prefer creditors may be (even if there is still a residual interest for the shareholders in the company). The implications of this for the law and for the market are explored.

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What Can We Expect to Gain from Reforming the Insolvent Trading Remedy?

Cited by 9 publications

References 23 publications

Business judgment and director accountability: a study of case-law over time

Business judgment and director accountability: a study of case-law over time

Civil Liability of a Company Director in the Vicinity of Insolvency: The Lithuanian Approach

The Paradox of Alignment: Agency Problems and Debt Restructuring

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