The Recasting of Insolvency Law

Publication Date01 Sep 2005
AuthorVanessa Finch
Volume 68 September 2005 No 5
The Recasting of Insolvency Law
Va n e s s a F i n c h
Over the last decade corporate insolvency laws and processes have changed in two important
ways.There has been a philosophical shift away from ex post responses to corporate crises and
towardsi n£uencing the waythat corporate actors manage the risks of insolvency ex ante. In addi-
tion, there has been a revision of i nsolvencyroles so that participants in corporate and insolvency
processes are increasingly encouraged to see corporate decline as a matter to be anticipated and
prevented rather than responded to after the event. In this development turnaround specialists
have gained a new prominence. These are changes that re£ect broader social and governmental
trends to audit performance more actively and to see issues in terms of needs to manage risks.
Such developments are important for corporate and i nsolvency lawyers ^ they recast a host of
issues within new framing assumptions a nd they force a re-think ing of corporate insolvencylaw’s
challenges and agendas.
Over the last decade corporate insolvency law and processes have changed in a
number of ways, some subtle some less so. Most dramatically, the Enterprise Act
2002 has replaced administrative receivership with administration as the govern-
ment-favoured way of dealing with ailing companies.
Such changes have accu-
mulated, along with developments in corporate law and governance, so that, ¢ve
years into the millennium, it can nowbe asked whether we are seeing a recasting
of insolvency lawand practice ^ one that is manifest in two deep-seated develop-
ments. The ¢rst of these can be typi¢ed a s the adoption of new philo sophical
underpinnings and the second as a recasting of insolvency’s actors (in the theatri-
cal sense) so that they are given revised roles.
This article presents the argument that a recasting of both philosophies and
actors is takingplace. It will be contended, ¢rst, that a fundamentalphilosophical
Readeri n Law,Lo ndonSchool of Economics a ndPolitical Science. I would like tothan kthe follow-
ing for their comments on this article: JudyDay,Rob Baldwin and the anonymous MLRreferees.
1 See eg I. Fletcher, ‘UK Corporate Rescue: Recent Developments ^ Changes to Administrative
Receivership, Administration and Company Voluntary Arrangements ^ The Insolvency Act
2000,TheWhite Paper 2001and the Enterprise Act 2002’ (2004) 5 EBOR 119;S. Frisby,‘InSearch
of a Rescue Regime:The Enterprise Act 2002 (2004) 67 MLR 247; V. Finch, ‘Re-Invigorating
Corporate Rescue’ [2003] JBL 527; S. Foster, ‘Enterprise Act 2002: Changes to CorporateInsol-
vency’[2003] 5 Ins Law 174;S. Rajani,‘The Enterprise Act20 02:outli ne ofcha ngesto insolvency
law’[2003] IL & P160; M.Phi llips and J.Goldring,‘Rescueand Reconstruction’(2002) Insol Intell
rThe Modern LawReview Limited 2005
Published by BlackwellPublishing, 9600 Garsington Road,Oxford OX4 2DQ,UK and 350 Main Street, Malden, MA 02148, USA
(2005) 68(5)MLR 713^736
change is now occurring so that the law, in combination with corporate and
creditor practice, is moving from a focus on ex post responses to corporate crises
to one that increasingly involves in£uencing the ways that corporate actors
manage the risks of insolvency ex ante. This movement, it w ill be mai ntain ed, is
consistent with those increasing appetites to audit and to risk manage that are to
be observed more generally across public and private sector activities. Second, it
will be argued that, in parallelwith such a philosophical shift, there is occurring a
revision of insolvency roles so that participants in corporate and insolvency
processes are becoming more encouraged and inclined to see corporate disasters
as matters to be anticipated and prevented rather than to be responded to after
the event.
From atleast the time of the Cork Report commentatorson i nsolvency processes
have stressed that the furtherance of rescue demands that interventions from out-
side troubled companiesshould take placeat the earliest opportunity.
Now, how-
ever, we may be seeing the start of a shift that institutionalises anticipatory
approaches to corporate troubles.
Legislative changes
The Enterprise Act 2002 e¡ected a signi¢cant change of stance in introducing a
number of reforms that were designed to assist troubled companies and to do so
by fostering a rescue culture.
As noted, it replaced the regime of administrative
receivership with provisions that gave pride of place to the new administration
procedure and it also ring-fenced a set portion of funds for the bene¢t of unse-
cured creditors.
The Enterprise Act did more, however, than further rescue. It
2 On the case for considering the roles of di¡erent institutions in insolvency lawand procedures see
J.Westbrook,‘The Globalisation of Insolvency Reform’(1999) NZLR 401,413.
3 See eg the Cork Committee, Report of the Review Committeeon Insolvency Law and Practice (Cmnd
8558, 1982) Chapter 9; Sir Kenneth Cork, Cork o n Cork (London: Macmillan, 1988) ch 10. On
distinguishing ‘traditionalist’ insolvency scholars (who se e insolvency law as u nrelated to
‘healthy-state’ corporate behaviour) from‘proceduralists’(who ‘worry intens ely about how rules
in bankruptcy a¡ect behaviour elsewhere’) see D. Baird, ‘Bankruptcy’s Uncontested Axioms’
(1998) 108Yale LJ 573.
4 On the rise of the ‘rescueculture’in the UK see M. Hunter,‘The Natureand Fu nctionsof a Rescue
Culture’[1999]JBL 49; A. Belcher, CorporateRescue (London: Sweet and Maxwell,1997);V.Finch,
CorporateInsolvencyLaw: Principles and Perspectives(Cambridge: CUP,2002) ch 6; B.Carruthers and
T. Halliday, Rescuing Businesses: the Making of Corporate Bankruptcy Law in England and the United
States (Oxford: Clarendon, 1998). On the primacyof rescue objectives under the Enterprise Act
2002 see Frisby,above n1, and the Secretaryof State for Trade and Industry’s statement at HCDeb
col 5310April 2002 (P.Hewitt). On the link between new world-wideconcerns with rescue and a
growing awareness that global ¢nancial wavescan distress even fundamentally sound enterprises
seeWestbrook, above n 2, 403.
5 On the new administration procedure as a rescue procedure see n 1above andV. Finch,‘Control
and Co-ordination in Corporate Rescue’ (2005) Legal Studies (forthcoming) ^ but on the same
procedure as a route towinding up see A. Keay,‘What Future for Liquidationi nthe Light of the
Enterprise Act Reforms?’ [2005] JBL143; L.Link later,‘New Style Administration: A Substitute
The Recasting of Insolvency Law
714 rTheModern Law ReviewLimited 2005

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