In Search of Rationality in Company Law
| Published date | 01 November 2010 |
| DOI | http://doi.org/10.1111/j.1468-2230.2010.00831.x |
| Date | 01 November 2010 |
| Author | Carsten Gerner‐Beuerle |
REVIEWARTICLE
In Search of Rationality in Company Law
Carsten Gerner-Beuerle
n
John Armour & Jennifer Payne (eds), Rationality in Company Law: Essays in
Honourof D.D. Prentice,Oxford: Hart Publishing,2009, 400 pp, hb d75.00.
‘DieWelt ist vernˇnftig.’
Kurt G˛del
1
The German tradition of the Festschrift, or liber amicorum, is spreading. Ra tionality
in Company Law, edited by John Armour and Jennifer Payne, is a collection of
essays in honour of one of the most in£uential scholars of corporate law in the
United Kingdom: Dan Prentice, long-time Allen & Overy Professor of Com-
pany Law at the University of Oxford.The book contains13 contributions from
eminent national and internationalcorporate lawyers. Itis organised in four parts,
dealing with enforcement of corporate law, legal capital and investor protection
in special corporate structures such as funds or ¢nancial services groups, share-
holder rights, and debt ¢nance and ins olvency. This essay will brie£y present the
individual contributions, o¡er some views on rationality in law, and then discuss
a number of the chapters in more detail in light of the concept of rationality
developed here.
Par t I of t he Festschrift, on enforcement, comprises essays from Arad Reisberg,
Eil|
¤s Ferran and JohnArmour. Reisberg analyses the newderivative action proce-
dure of the Companies Act 2006.His essay,as well as that of John Armour, which
deals with mechanisms to enforce constraints on managerial agency costs, will be
reviewed in more detail below. Eil|
¤s Ferran explores the importance of enforce-
ment for e⁄cient and competitive securities markets in light of a recent decision
of the Irish Supreme Court,
2
the ¢rst Irish case dealing with civil liability for
pro¢ts made from insider dealing. The case does not only show that enforcement
of the insider trading prohibition is still the exception rather than the rule, it also
illustrates the dangers of relying on authorities from other jurisdictions without
paying su⁄cient regard to the idiosyncrasies of the local law. The decision of the
Irish High Court, which had rejected the claim based on the‘reasonable investor’
test as developed in some US decisions,
3
was overruled by the Supreme Court on
the groundthat the US test wasinappropriate for purposes of the Irish law.Ferran
n
Law Department,London Schoolof Economics& PoliticalScience.
1 Quote from R. Goldstein, Incompleteness: The Proofand Paradoxof Kurt G˛del (New York: W.W.
Norton, 2005) 55.
2Fy¡es plc vDCC plc [2007] IESC 36.
3 Most notably SEC vTe x a s G u lf S u l p h ur C o 401 F.2d 833 (2d Cir. 1968).
r2010The Author.The Modern Law Review r2010 The Modern LawReview Limited.
Published by BlackwellPublishing, 9600 Garsington Road,Oxford OX4 2DQ,UK and 350 Main Street, Malden, MA 02148, USA
(2010) 73(6) 1048^1075
ends on the sombre note that enforcement of securities regulation, in Ireland as
well as the United Kingdom, falls short of the optimal levelof intensity.
PartII of the book, on sharecapital and investor protection, presents fouressays
that discuss the principle of capital maintenance and the position of investors
holding shares in infrastructure funds ori ntermediated securities. The¢rst contri-
bution from Jennifer Payne analyses the e⁄cacy and desirability of legal capital
rules in general, and the new provisions of the Companies Act 2006 i nparticular,
which allow for substantialderegulation for private companies. Payne revisits the
well-known objections to legal capital. She endorses an abolition of the rules in
favour of a regime ofcreditor protection based on a mixture of contract and insol-
vency law and a solvency test for distributions and other manipulations of the
company’s capital.
In the next chapter, Martin Lawrence and Geof Stapledon deal with a specia-
lised topic of increasing importance: externally managed infrastructure funds, a
¢nancing model pioneered by Australia’s Macquarie Group, which involves the
establishment of a separate publicly traded entity that owns infrastructure assets
and that is operated under a management agreement by the sponsor. The model
has risen in popularityi n recent years, but several governance issues give cause for
concern:the substantial‘assetmanagement fees’ drawnby the sponsor; entrenched
management (for example through special shares); and the fact that distributions
to investors often exceed the fund’s operating cash £ow (eg by securitisation of
expected future cash £ow).
4
Lawrence and Stapledon describe the operation of
listed infrastructure funds in detail and make suggestions for reform, focusing
mainly on enhanced transparency.
Capital requirements and solvency in another special context, namely that of
groups ofcompanies, are discussed by EddyWymeersch. He outlines the general
law on corporate groups in Germany, the Netherlands and France (the so-called
Rozenblum doctrine), and then concentrates on the regulation of ¢nancial
services groups on the European level, ie by the Financial Conglomerates Direc-
tive,
5
the Capital Requirements Directive
6
and the Solvency II Directive.
7
His
article is a contribution to the challenging task of not only harmonising the
national laws concerning supervision and coordinating the activities of the
nationalsupervisors, but also integrating the generalprinciples of groupcompany
law, which are not harmonised,
8
and the rules on prudential supervision, in order
to developa coherent regulatory architecture.
4 Australian capital maintenance r ules are circumvented by inclusion of a trust or a Bermudan
company in the entity structure.
5 Council Directive (EC) 2002/87/EC of 16 December 2002 on the supplementary supervision
of credit institutions, insurance undertakings and investment firms in a financial conglomerate
[2003] OJ L 35/1.
6 Council Directive (EC) 2006/49/EC of 14 June 2006 on the capital adequacy of investment
firms and credit institutions (recast) [2006] OJ L 177/201.
7 Wymeersch discusses the proposal, which has subsequently been adopted as Council Directive
(EC) 2009/138/EC of 25 November 2009 on the taking-up and pursuit of the business of
Insurance and Reinsurance (Solvency II) [2009] OJ L 335/1.
8 Work on a Ninth Company LawDirective on groups failed; the directive did not even reach the
proposal stage.
Carsten Gerner-Beuerle
10 49
r2010The Author.The ModernLaw Review r2010 The Modern LawReview Limited.
(2010) 73(6) 1048^1075
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