Insolvency systems and corporate governance: some general remarks Stilpon Nestor

Insolvency systems and corporate governance: some general remarks

• Stilpon Nestor

• 3 key attributes of the insolvency system:

• A close relationship to corporate finance arrangements in specific countries.
• Functions as a key benchmark for corporate attitudes towards risk.
• Functions as a set of governance norms for insolvent going- concerns.

Relationship with corporate finance arrangements

• The archetypal insolvency law  a funeral service

Relationship with corporate finance arrangements

• What is changing and why:

• Globalisation of financial markets
• Financial sector capture becomes more difficult
• Development of market finance
• A moral hazard that is receding
• A changing corporation

Relationship with corporate finance arrangements

• Common aspects of every modern insolvency law:

• Value preservation
• Early access
• Moratorium on payments
• Market conformity
• Implementation
• Courts and/or other public insolvency institutions
• Design that corresponds to infrastructure capacity

Insolvency arrangements and corporate behavior

• weak insolvency mechanisms have a profoundly negative effect on corporate governance  a vicious circle

• Discharge: encouraging entrepreneurial behaviour

• Avoidance powers and related parties: discouraging tunnelling and plunder

Corporate governance of insolvent going concerns

• Debtor in possession vs. external administration

• Does it matter?
• The best of both worlds?

• Insider dealing

• The role of creditors

• Recidivism

Conclusion

• Coherent approach to corporate affairs policies streamlined incentives for corporate agents more productive corporate sectors

• Thank you