Governance of Distressed Firms
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Governance of Distressed Firms

David Milman

The concept of a distressed firm covers businesses that are struggling, but have not yet entered formal insolvency, as well as those businesses that are undergoing a formal insolvency process. With reference primarily to English law, this study encompasses both limited liability companies and limited liability partnerships with a focus on the regulation both of company directors and insolvency practitioners. It offers recommendations for improvements in governance mechanisms and notes that many of the governance shortfalls that occur can be related to the ease of access given to those who wish to trade with the benefit of limited liability.
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Chapter 5: Comparative and EU perspectives on the governance of distressed firms

David Milman


We have made a number of comparative points in passing in the commentary above. This chapter will now seek to offer more systematic comparative insights into the central stewardship issues covered in Chapters 3 and 4, as applicable both to company directors and insolvency office-holders operating in other jurisdictions. As a result of offering such alternative insights, policymakers in the UK may acquire ideas for legal reform. The Cork Committee made some limited use of comparative analysis in its 1982 report and more recently policymakers have looked at, but not been totally convinced by, measures available under US bankruptcy law to fund corporate rescue. However, whilst lauding this tendency to adopt a broad perspective, we should first issue a note of caution with regard to the general suitability of such legal transplants. Comparative study is, without doubt, valuable in offering insights into how different jurisdictions tackle what may appear to be common problems. But it must not be assumed that solutions adopted successfully in one jurisdiction will necessarily be equally effective in a different legal system. Legal transplants as instruments of reform must therefore always be viewed with some circumspection. Subtle cultural and ‘institutional’ differences may change the dynamics of effective reform. The ‘law in the books’ does not always translate perfectly into the law as it operates in practice. That reality is now generally accepted by most scholars of corporate law. With that important caveat in mind, we should at least examine the possibilities of learning lessons from the stewardship experience of broadly comparable jurisdictions in dealing with distressed firms. Our focus will be to try to identify novel aspects of governance worth considering for adoption in English law. In other words, there will be some ‘cherry-picking’, but, in so searching for novelty, we should not close our eyes to obvious commonality.

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