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