In the final hours before the vote on the Preventive Restructuring Framework, the debate continues in full force. Two blog posts have been posted, urging the legislators to carefully reflect upon the proposed text.
The first post is written by prof. dr. M. Brinkmann (“Die relative Vorrangregel aus Art. 11 (1) (c) der Insolvenzrichtlinie: nicht nur untauglich, sondern brandgefährlich!”) and can be consulted here.
The second post (“Puzzling priorities: harmonisation of European Preventive Restructuring Frameworks”) is written by Anne Mennens and can be consulted here.
Who says insolvency law cannot be thrilling?
The message of the post last week on this blog by Professor R.J. de Weijs, A.L. Jonkers and M. Malakotipour of the University of Amsterdam has been replicated by the authors in a Letter to the EP, with a supporting letter by Professor Douglas Baird of The University of Chicago.
Professor Bob Wessels of Leiden has replied to their arguments on his blog.
The draft Directive is up for vote on 27 March 2019.
Asset partitioning refers to limited liability (or: owner shielding) and entity shielding. In both cases a pool of assets is allocated to a pool of liabilities.
The economic justifications of limited liability and entity shielding typically refer – sometimes implicitly – to the situation of many shareholders in a business. Hansmann and Squire refer to this type of asset partitioning as external asset partitioning (“External and Internal Asset Partitioning: Corporations and Their Subsidiaries, The Oxford Handbook of Corporate Law and Governance (Forthcoming)”; Yale Law & Economics Research Paper No. 535, 2.). Asset partitioning is also used within a business to make separate pools of assets and liabilities; this is internal asset partitioning (ibid.). A typical example is a corporate group, where the business as an economic unity is internally, through affiliates, divided in separate pools of assets. We also consider a company owned (or primarily owned) by a single shareholder as internal asset partitioning, even if that shareholder is a physical person. The economic unity between the single shareholder and the business of her company is similar to, if not stronger than, that between the separate entities of a corporate group.
Asset partitioning builds walls between pools of assets and liabilities. Sometimes the insiders themselves disregard the asset partitioning which they have set up themselves. This is referred to as selective de-partitioning. A crude example is the single shareholder or the parent company extracting assets from its company or subsidiary or shifting liabilities towards it. A more sophisticated example is a guarantee of one entity of a group towards another entity of the group. Often legal rules provide the creditors of the shareholders of a company with remedies against selective de-partitioning. In such a case the law reinforces the walls of asset partitioning.
We will use Belgian law as an example of how an entity-focussed tax law can favour asset partitioning and discourage selective de-partitioning. Continue reading “The underestimated role of tax law in promoting asset partitioning ánd discouraging selective de-partitioning”
A post by Jasper Van Eetvelde & Michiel Verhulst
The CJEU judgement on the 14th of March 2019 in the Vantaan kaupunki case shows the increasing spillover effects of the public enforcement of competition law on the private enforcement thereof. The CJEU found that the concept of ‘undertaking’ as autonomously interpreted in competition law is applicable when claiming for damages on the basis of breaches of EU competition law. This has far-reaching consequences, since it implies that both the principles of parental liability and economic continuity are henceforth part of the national rules on the private enforcement of EU competition law. This triggers some reflections on corporate law on voluntary winding-up in general and the usefulness of focussing on the economic reality outside competition law. Continue reading “The CJEU Vantaan kaupunki case: piercing the corporate veil via private enforcement of EU competition law”
A post by guest bloggers prof. dr. R.J. de Weijs, A.L. Jonkers LLM and M. Malakotipour LLB (University Amsterdam)
On March 26, 2019 the European Parliament will vote on the Preventive Restructuring Framework.
The initial draft Directive from 2016 contained a rule providing the basic protection that shareholders of a financially distressed and reorganized company could not hold on to any value unless the creditors by majority vote consented thereto. Such a rule is in force in US and German law and is referred to as an Absolute Priority Rule (‘APR’). The US has been an important source of inspiration for implementing such a far-reaching reorganization procedure. The Absolute Priority Rule is generally considered to be one of the most important rules of US bankruptcy law, see recently the US Supreme Court in the famous Czyzewski v. Jevic Holding Corp case, calling the APR “quite appropriately, bankruptcy’s most important and famous rule” and “the cornerstone of reorganization practice and theory.”
Without much in-depth analyses or debate, the European Union is about to embark on a wild adventure. It seeks to implement the US reorganization culture, without however the most basic rule of protection. Continue reading “A reply to professor Madaus “The new European Relative Priority from the Preventive Restructuring Directive – The end of European Insolvency Law?””
A post by guest blogger Sebastiaan van den Berg
On 31 January 2019, Sebastiaan van den Berg successfully defended his PhD thesis at the Radboud University in Nijmegen (the Netherlands). Under supervision of prof. mr. S.C.J.J. Kortmann and prof. dr. W.G.M. Holterman, Sebastiaan studied aspects of business valuation in (i) corporate law proceedings and (ii) financial restructurings or reorganizations of companies. Having a background in both law and economics, his book Valuation in Dutch Corporate Law and Dutch Bankruptcy Law”, is based on interdisciplinary research. With this research and its conceptual approach to valuation (instead of a mere technical overview of valuation methodologies), the book offers a useful guide on the key valuation concepts and principles that are relevant in legal settings. Continue reading “Valuation in Dutch Corporate Law and Bankruptcy Law”
Oxford University Press recently published a book on pre-insolvency proceedings (aptly entitled) “Pre-Insolvency Proceedings, A Normative Foundation and Framework”. It is authored by Nicolaes Tollenaar and includes a foreword from Justice Richard Snowden.
The book develops a normative foundation for pre-insolvency proceedings and provides a framework outlining what an ideal pre-insolvency procedure might look like. It discusses the key economic and legal principles underlying restructuring proceedings, the system of voting in classes, the appropriate criteria for cram down and valuation. It further offers a comparative analysis of UK schemes and the Chapter 11 plan procedure with a view to drawing on the lessons learned from each.
The book is an updated translation of the (Dutch) PhD of the author (previously presented on this blog) and is available at: https://global.oup.com/academic/product/pre-insolvency-proceedings-9780198799924?cc=nl&lang=en&