Secutarization and post-crisis financial regulation

The technique of securitization was at the heart of the financial crisis (for a primer on securitization, read here). Originally a sound instrument to mitigate risk, the standards of the securitization process degraded in the years leading up to the financial crisis, which contributed to excessive credit growth in and outside of the formal banking system (read here).  Continue reading “Secutarization and post-crisis financial regulation”

All creditors are equal, but some creditors are more equal than others

Les biens du débiteur sont le gage commun de ses créanciers, et le prix s’en distribue entre eux par contribution, à moins qu’il n’y ait entre les créanciers des causes légitimes de préférence

Article 8 Belgian Loi Hypothécaire (art. 2093 French Civil Code) contains the basic principle of paritas creditorum. All creditors have an equal right to payment and the proceeds of the debtor’s estate shall be distributed in proportion to the size of their claims. The principle of equality is, however, not absolute. Secured and preferred creditors jump the queue, and are paid before ordinary creditors. The pari passu principle still is a bedrock principle of insolvency law. In reality, however, the rule has gradually become the exception (read about the pari passu myth, here). Ordinary creditors are left with peanuts once secured and preferred creditors are paid. All creditors are equal, but some creditors are more equal than others, indeed. Continue reading “All creditors are equal, but some creditors are more equal than others”

‘You can’t dance at two weddings with one behind’ (Yiddish proverb)

The uneasy dual role of creditor and shareholder


A previous post mentioned the rudimentary rule on distributions in the ‘partnership en commandite’ (limited liability partnership) in article 206 of the Belgian Company Code (‘BCC’), dating back to 1873:

“Third parties can force [the limited partner] to return any interest or dividends distributed to him, if such distributions are not taken from the non-fictitious profits of the partnership. The unlimited partner has recourse against the manager for any distributions he had to return, in case of fraud, bad faith or serious negligence by the manager.”

Today we discuss how one word in this antique (yet inspiring) rule foreshadows a topical subject: Continue reading “‘You can’t dance at two weddings with one behind’ (Yiddish proverb)”

Debt: use it wisely

 “L’homme moderne est dans bien des cas plus enclin à la dépense que ne l’étaient ses ancêtres”  (F. H. Speth, La divisibilité du patrimoine et l’entreprise d’une personne, Parijs, L.G.D.J., 1958, 10)

Our society is credit driven. Consumers and companies borrow against future earnings to finance actual spending. Banks borrow for a living. The Government borrows to pay for social peace, pushing the bill towards future generations. Money for nothing only exists in pop songs. Credit eventually has to be paid by somebody, be it the debtor or society as a whole.

The International Monetary Fund recently publised a report on the proliferation of private sector debt. Continue reading “Debt: use it wisely”

Legal challenges in a world of negative interest rates

Banking in a Brave New World

Financial institutions, insurers, investors, and their legal counsel need to substantially adapt their way of thinking and operating in a negative interest rate environment

See post (Stibbe) here.

Distributions to shareholders: inspiration from the ‘partnership en commandite’?

In case of an irregular distribution a shareholder – even in good faith – is less deserving of protection than a creditor

A previous post had a look at the ancient partnership en commandite as a treasure-trove for company law reform. This post explores what we can learn from the ‘partnership en commandite’ for the regulation of  distributions to shareholders. Continue reading “Distributions to shareholders: inspiration from the ‘partnership en commandite’?”

Our own private Delaware: the ‘partnership en commandite’

Lessons from an ancient experiment with light vehicles: on moral hazard, agency problems, publicity systems and the unsavoury regions of Flanders

The limited partnership or “partnership en commandite” (commenda, société en commandite, Kommanditgesellschaft) has been a fixture of continental business law since the 12th century. It is an entity with one or more unlimited partners and one or more limited partners. For a long time, the limited partnership was the only form offering limited liability off-the-shelf, without the need for a specific governmental authorization. In many jurisdictions the “partnership en commandite” still enjoys a quiet popularity. Continue reading “Our own private Delaware: the ‘partnership en commandite’”