Bork and Mangano. Without a doubt, the editors of this book, Prof. Reinhard Bork (Germany) and Prof. Renato Mangano (Italy), are among the most productive European scholars in the broad field of insolvency law. I’ve reviewed several of their writings (consult my blog: www.bobwessels.nl). These are among the most instructive and well-detailed works. This time, together with a group of experts, they address what could be called the true foundations of corporate insolvency law.
11 chapters. The book “The Anatomy of Corporate Insolvency Law” consists of eleven chapters. They cover most relevant topics of corporate insolvency law. The authors have been chosen on a world-wide basis. They come from China, Germany, Italy, Spain, the UK, and the US. In alphabetical order, the contributors in the book are: Reinhard Bork (‘Transaction Avoidance Rules’ and ‘Cross-Border Insolvency Law’), Laura Carballo Piñeiro (‘Aspects of Labour Law’), Edward J. Janger (‘Security Rights and Creditors’ Priority and Ranking: Realizable Priority in Rescue’ and ‘Corporate Groups in Rescue’), Günter Kahlert (‘Aspects of Tax Law’), Shuguang Li (‘Distress, Insolvency, and the likelihood of Insolvency’), Renato Mangano (‘What is Insolvency Law?’ and ‘Directors’ Duties in the Vicinity of Insolvency, Disqualification, Piercing the Veil’), Jennifer Payne (‘Debt Restructuring Outside Formal Insolvency Proceedings’), and Johannes Richter (‘Formal Insolvency Proceedings’).
A foundational book. The book aims for a fundamental depth, even in a way that made me doubt the choice of the right title for the book. Not so much the ‘Anatomy’, but the ‘Corporate Insolvency Law’ in the title. The editors explain that modern insolvency law has nothing to do with the grim reality depicted in certain Victorian novels of debtors subjected, not to insolvency proceedings, but to imprisonment even for indefinite periods. You would rather hope that the group of readers the book is aimed at (reasonably developed experts) only know these characteristics from the small print in their books when studying insolvency law. No, the editors want to show that insolvency law has become a subject of extraordinary relevance and increasing intellectual fascination. I quote, and apply my own numbering: [1] ‘On the one hand, academics, policymakers, lawmakers, judges, and practitioners have reoriented this field of law in order to facilitate the rescue of distressed companies for as long as possible. [2] On the other hand, this evolution has reshaped some of the most traditional categories of our legal culture. For example, this new deal has introduced into the toolbox of insolvency practitioners a great number of devices that combine the flexibility of contractual workouts with the capability of insolvency proceedings to bind even the most recalcitrant of creditors – as a result, in some cases the traditional distinction between “contract” and “proceedings” has blurred. [3] The same tendency in favour of rescue has persuaded some lawmakers to enable distressed companies to depart from the traditional criteria according to which the debtor’s assets must be distributed – traditionally, these criteria were considered as non-negotiable – and even to waive a milestone of every company law according to which a company’s shareholders are the company’s residual claimants. A further consequence of this new approach is that in the case of group insolvencies there has been a tendency to mitigate the traditional single-entity approach according to which there ought to be one set of insolvency proceedings for each distressed company.’
Nutshell. In summary, therefore: [1] reorientation of insolvency law to facilitate business rescue, [2] instrumentalization of the law with building blocks for contractual solutions, blurring the boundaries between ‘proceedings’ and ‘contract’, [3] a removal of the unassailable focus on assets, their liquidation and distribution of proceeds among creditors according to their rank, and also of the dogma that a retainer is always a residual creditor and every company a legal person in its own right. Similar patterns are emerging, with greater emphasis on debtor-in -possession processes, many times supported by a stay (or moratorium), negotiations leading to a composition or restructuring plan, for a large part based of legislative changes in the restructuring sector, in the UK, in the EU (the implementation in 2020 – 2022 of the EU preventive Restructuring Directive (EU 2019/1023), as well as comparable processes in emerging markets.
Rescue of Business in Europe. It is precisely these characteristics that the editors emphasize, that led Prof. Stephan Madaus (University of Halle, Germany) and me (in collaboration with many European experts) to formulate our 155 recommendations (as part of the report in 2017 unanimously supported by the European Law Institute (ELI)) for ‘Rescue of Business in Europe’, see Wessels, Bob and Madaus, Stephan, Business Rescue in Insolvency Law – an Instrument of the European Law Institute (September 6, 2017). Available at SSRN: https://ssrn.com/abstract=3032309, or – alternatively – available at https://www.europeanlawinstitute.eu/fileadmin/user_upload/p_eli/Publications/Instrument_INSOLVENCY.pdf. It is a pity that the editors and authors of this book have not incorporated this report in their writings. In its present form, it seems that the editors are trapped in the idiom of the Directive, where ‘likelihood of insolvency’, i.e. probable, foreseeable, possible or threatening insolvency, is presented – without further consideration – as part of ‘insolvency law’. And not as a – further elaborated- separate category of ‘restructuring law’. Shouldn’t the book have been called “The Anatomy of Corporate Restructuring Law”?
World-wide anatomy. These characteristics as mentioned by the editors are recognizable worldwide. It is therefore right that the book presents a review of views reflecting ‘the world of all insolvency laws as a whole’. The editors know that the authors are faced with the appealing task not to present and analyse a very specific (domestic) insolvency law, but to address certain themes from an overarching, quasi supra-national perspective. In fact, we are returning to the foundations of insolvency law, a theme that has been of interest in corporate law for many years. Consider, for example, Reinier R. Kraakman et al., The anatomy of corporate law; a comparative and functional approach (2004), or, from a European perspective, Stephan Grundmann, European Company Law, Organization, finance and capital markets (2007). In insolvency law, an approach based on foundations plays (played?) a less important role than in company law, perhaps because classical insolvency law is a theme where the value of the company itself is not (ie ‘was not’) central, but the stigmatizing effect of insolvency relegates the field to a secondary playing field. There are good exceptions, see Emilie Ghio, John M. Wood, Jennifer L.L. Gant (eds.), Re-examining Insolvency Law and Theory, Perspectives for the 21st Century, Edward Elgar Publishing, 2023. ISBN 978 1 80392 875 3, recently reviewed by me, see https://bobwessels.nl/blog/2024-12-doc1-re-examining-insolvency-law-and-theory/. In this review I also complain about the ‘Creditors bargain’ theory followed for years by many Europeans, which – in retrospect, in the light of the restructuring wave – has the characteristics of following a classic wrong track. Another book that is definitely worth studying is the thought-provoking publication of Aurelio Gurrea-Martinez, Reinventing Insolvency Law in Emerging Economies, Cambridge University Press, 2024. ISBN 978 1 009 43171 2.
Authors’ contributions. The authors’ central guidance is to explain (comparatively and functionally) what corporate insolvency law is and how it works, to create an understanding of what the cornerstones of insolvency law are, what the various legal systems have in common, and how they differ fundamentally. Of course, no specific ‘country-by-country’ treatment, rather a treatment per topic in order to ascertain how the same problems may lead to different solutions in different jurisdictions, how they differ or seem alike and what would be a solution of choice by the specific author. The focus of all authors is especially on the laws of the UK, US, Germany, France, China and, e.g., EU initiated legislation.
Some individual contributions. I realize that I am not doing justice to all the individual authors by just highlighting some parts of some of their contributions that caught my eye while browsing through them.
In his contribution Mangano refers to the rather new procedure in the UK Companies Act, which procedure only requires that the company has ‘… encountered or is likely to encounter financial difficulties that are affecting, or will or may affect, its ability to carry on business as a going concern’. Here indeed one sees that actual insolvency or even the vicinity of insolvency is not a requirement. Is it ‘insolvency law’, ‘restructuring law’ or just ‘company law’? The general idea of the ‘Creditors bargain’ is criticised. Just looking at creditors is too limited. It should be wider: ‘claimants’. Mangano sees the ‘bargain’ as a lack of cooperation between competing claimants (competing interests of creditors and other stakeholders). He also refers to literature of Thomas H Jackson, expressing his regret of what he labelled to be a ‘creditors bargain’. Mangano explains in an appealing way the ideas behind the large variety of insolvency and restructuring proceedings. He does so by using several tables that should illustrate his ideas, referring to game theories (bargaining game; chicken game another sort of games). These are beyond my comprehension, so a reader who wants to delve deeply will first have to read up on these kinds of theories.
Shuguang Li’s contribution is a good read about the pros and cons of out of court reorganisation (no direct participation of the court; a higher level of freedom and usually one-to-many contracts, ie one debtor versus many creditors). In my Dutch publications I always refer to a restructuring plan as a multi-party agreement, which has a – be it less detailed – section in the Dutch Civil Code. The advantages and disadvantages he also sums up. It certainly is interesting for experts (IPs, scholars and also judges) to get an idea about debt restructuring outside formal insolvency proceedings. It can be very well explained, together with the next chapter on contractual workouts (Jennifer Payne), including restructuring plans (commencement of such a plan; the content of such a plan; approval of a plan by creditors; the confirmation of the plan by the court and the effects of confirmation of a plan). Overviewing recent study books that I know from several countries also these articles are typically a good source for master students to learn and discuss during their lectures.
The ‘mirror’ of these 2 articles is Johannes Richter’s contribution on formal insolvency proceedings. I would say that these typically liquidation proceeding has been illuminatingly explained comparing French, German and English law as well as Chinese law. The chapter follows the typical course of insolvency proceedings which makes it a very good read for students.
Chapter 9 (Bork) is about cross-border insolvency law. It is largely based on his well-known book with regard to the principles of cross-border insolvency law. Jurisdictional, procedural and substantive principles are further explained. In this chapter Bork doesn’t limit himself to explanation but also provides further detail with regard specific cross-border topics, such as international jurisdiction, applicable law, transaction avoidance, recognition and provisions on cooperation and communication. I had hoped to read some remarks regarding the incompatibility (or unalignment) of (contractual and court confirmed) restructuring plans and the EU Insolvency Regulation. The rules of this Regulation (in its key going back to 1995!) are largely based on the basic notions of the traditional public insolvency (liquidation) proceedings that include the creation and administration of an estate, the
verification of claims and the realisation and distribution of value, provided for by a court
appointed insolvency practitioner. These characteristics are not core features of preventive
restructuring proceedings. Hence many, if not most, of the Regulation’s rules would not
meaningfully apply to such procedures (even if they are listed in Annex A) or several of the Regulation’s provisions seem at odds with the needs of such preventive procedures, respectively. See https://www.ceril.eu/news/ceril-statement-2022-2-on-cross-border-effects-in-european-preventive-restructuring.
Closing the book. This ‘Anatomy’-book, written by a team of eleven leading academics at top universities around the world, easily will be viewed as a leading book in the field of comparative corporate (insolvency) law. It will be one of those books that – across the world – students and scholars could consult as a starting point for their inquiries. It may also be used in classes where – with some explanation and addition from a lecturer at a university – it can be an interesting source for students to get an idea about all the similarities and differences in a larger group of proceedings in several countries, and to discuss how these specific proceedings fit into their view of how a society should deal with businesses that are nearing insolvency, but as an enterprise are still viable.
Reinhard Bork and Renato Mangano(eds.), The Anatomy of Corporate Insolvency Law, Oxford University Press, 2024. ISBN: 978 0 19 885209 4.
Note: this book I received free of charge from the publisher with the request to announce it or to review it on my blog at www.bobwessels.nl.