Creditor Protection in Private Companies: Anglo-German Perspectives for a European Legal Discourse (International Corporate Law and Financial Market Regulation)

353 Pages·2009·2.18 MB·English

by  Thomas Bachner

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CREDITOR PROTECTION
IN PRIVATE COMPANIES
Limited liability companies form the backbone of our modern
economy. However, there is a persistent risk of moral hazard on the
part of directors and shareholders, particularly in closely held or
privatecompanies. Likealldevelopedlegalsystems,bothEnglishand
German law provide mechanisms designed to protect creditors from
suchrisks.Thisbookinvestigatessomeofthesemechanisms,including
the avoidance of pre-insolvency acts, capital maintenance and
creditor-regarding duties of directors. By analysing the different
conceptual and doctrinal perspectives inherent in the English and
German systems, this book seeks to advance a discourse between
audiences with different legal backgrounds. It will be an invaluable
guideforthosewishingtounderstandhowtheprotectivemechanisms
operate and interact with each other, and how they do so in quite
different waysinthetwojurisdictions.
thomas bachner isAssistantProfessoratWU(ViennaUniversity
ofEconomicsandBusiness).

CREDITOR PROTECTION
IN PRIVATE COMPANIES
Anglo-German Perspectives for a
European Legal Discourse
THOMAS BACHNER
CAMBRIDGE UNIVERSITY PRESS
Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo
Cambridge University Press
The Edinburgh Building, Cambridge CB2 8RU, UK
Published in the United States of America by Cambridge University Press, New York
www.cambridge.org
Information on this title: www.cambridge.org/9780521895385
© Thomas Bachner 2009
This publication is in copyright. Subject to statutory exception and to the
provision of relevant collective licensing agreements, no reproduction of any part
may take place without the written permission of Cambridge University Press.
First published in print format 2009
ISBN-13 978-0-511-51794-5 eBook (NetLibrary)
ISBN-13 978-0-521-89538-5 hardback
Cambridge University Press has no responsibility for the persistence or accuracy
of urls for external or third-party internet websites referred to in this publication,
and does not guarantee that any content on such websites is, or will remain,
accurate or appropriate.
CONTENTS
Contents page v
Preface ix
Table of abbreviations xi
Table of legislation xv
Table of cases xxiv
Terminology xxxv
1 Introduction 1
A Creditor protection –afocal pointofcurrent
developments 1
1 The Centros case: from Denmark to Delaware 1
2 The European regulation on insolvency proceedings 5
3 Theinterconnectedness ofcompanylawand
insolvency law 7
4 Recent developments in a nutshell 12
B Comparative legalmethodology andthequestfor a
European legal discourse 19
1 ‘Europa¨ ische Rechtswissenschaft ’19
2 A functional approach to creditor protection 20
3 Beyond functionalism 23
4 Understanding foreignlaw–from Auslandsrechtskunde
to a European legal discourse 25
C The scope and aims of this book 31
2 Avoidance of acts that are detrimental to creditors 39
A Introduction 39
B The relevance of insolvency and ‘twilight periods’ 43
1 Avoidance remedies outside insolvency proceedings 43
2 Additional grounds for avoidance in insolvency 45
v
vi contents
3 Insolvency tests and twilight periods 47
C Detriment to creditors 50
1 The English approach 50
2 The German approach 55
3 Castingthenetwideenough:‘legalact’
versus ‘transaction’ 57
4 Directdetriment, unequalbargainsand‘puredetriment’
to creditors 62
5 Indirect detriment 67
D Subjective elements in avoidance grounds 68
1 The debtor’s bad faith as justification for avoidance 68
2 Thecounterparty’s awarenessand alternativewaysto
protect commercial certainty 77
E Connected persons 84
1 Germany 85
2 England 88
F Summary and outlook 90
3 Capital maintenance and unlawful distributions 94
A Introduction 94
B Capitalmaintenance andtheboundariesof
lawful distributions 97
1 Capital maintenance defined 97
2 Capital, assets and the nature of distributions 101
3 Componentsofequitycapital andrestrictions
on distributions 105
4 Equity capital available for immediate distribution 110
5 The potential usefulness for creditors 114
C Remedies to reverse unlawful distributions 115
1 The statutory basis 115
2 Treatingconcealed distributions asunlawful
distributions 122
3 Distributions byway ofvaluetransfers torelated
third-party recipients 131
D Excursus: Equity-substituting shareholder credit
(eigenkapitalersetzender Gesellschafterkredit ) 138
E Summary and outlook 141
4 Directors’ liability for contraventions of capital
maintenance rules 145
A Introduction 145
contents vii
B Directors’ dutiesandcontraventions ofcapital
maintenance rules 146
1 Comparative classifications andtheneedfor
conceptual clarity 146
2 TheGermanapproach todirectors’dutiesand
capital maintenance 152
3 TheEnglishapproach todirectors’dutiesand
capital maintenance 158
C Recipientliability basedonadirector’sbreach
of fiduciary duty 174
D Summary and outlook 178
5 Directors’ liability for conduct in the vicinity
of insolvency 180
A Introduction 180
B Directors’ dutiestowardscreditors inGermany:avictory
of delict over insolvency law 183
1 Directors’personal liability indelict– internal
versus external liability 183
2 Delictualliability forInsolvenzverschleppung
(delayed filing for insolvency) 188
3 An interim summary and an explanation 204
C Wrongfultrading anddirectors’dutiesinEnglishlaw:
variety for its own sake? 208
1 Problemsandperspectives– switchingbetween
legal systems 208
2 The legal nature of wrongful trading 212
3 Wrongfultrading anddirectors’dutytoexercise
reasonable care, skill and diligence 229
4 Wrongfultrading anddirectors’fiduciary dutyto
consider the interests of creditors 235
D Summary and outlook 244
Conclusions 248
Appendix: Statutory provisions 257
Editorial note on German sources 280
Bibliography 283
Company Law Review consultation documents 305
Index 307