The adaptive capacity of markets and convergence in law: UK high yield issuers, US investors and insolvency law

This article examines the increasing access by UK issuers of high yield bonds to US investors notwithstanding substantive differences in the approach to valuation of the issuer in financial distress in US and UK restructuring law and, therefore, in anticipated return on default. It examines the development of the market in the context of existing theories on the relationship between law and finance and suggests that previous accounts have overlooked the adaptive capacity of the finance market to legal environment and the implications of such structural adaptation for the prospects of convergence in law. Three states are identified: where the market is poorly adapted to the legal environment and reinforces other pressure for change, where the market is adapted to the legal environment and is a neutral influence on, or even dampens, other pressure for change and where both legacy and adapted structures exist, potentially pulling in different directions at the same time

Insolvency law, restructuring law and modern financial markets

The finance market has undergone rapid change in developed Western economies in the last decade. In much of Europe the concentrated finance market in which a small group of banks controlled the flow of finance to large and small companies has given way to a dispersed creditor economy. In both Europe and the US there has been an explosion of secured credit and the market for buying and selling debt of distressed companies has matured so that those holding the debt of a financially distressed company will, in many cases, not be the lenders who originally advanced the funds

The paradox of alignment: agency problems and debt restructuring

Traditional agency theory predicts that when a large company is trading solvently shareholders will align their interests with those of the directors, but that this may also mean that when the company is financially distressed directors will prefer shareholder interests to those of the creditors ( even if there is no residual value for the shareholders in the company). Both the law and the market respond to this problem, and to date the situation has been held in some sort of approximate balance. However, this article examines the consequences of alignment of shareholder and director interests when a large private equity company is in financial distress, in light of the debt restructuring which is likely to be in contemplation and the type of director who is often retained. It argues that in these cases directors may have an incentive to support creditors’ debt restructuring plans and, paradoxically, the closer the alignment of their interests and those of the shareholders when the company is trading solvently, the greater this incentive to prefer creditors may be (even if there is stilla residual interest for the shareholders in the company). The implications of this for the law and forthe market are explored

Rethinking the role of the law of corporate distress in the Twenty-First century

Thomas Jackson famously described the role of all bankruptcy law as reducing the incentive for individual enforcement against the assets of a distressed company. Although scholars have debated other aspects of Jackson’s thesis, most have continued to identify with this as the central tenet of bankruptcy law. This paper proposes a new taxonomy: the law of corporate distress comprised of insolvency law and restructuring law. It argues that Thomas Jackson’s description remains apt for part of that taxonomy but draws a distinction between the constituent parts. It reframes the unifying aim of the law of corporate distress as the facilitation of the reallocation of resource in the economy to best use and draws a distinction between insolvency law’s role in reducing the incentive for individual enforcement and restructuring law’s role in providing a deadlock resolution procedure. Adopting a comparative Anglo-American approach it examines the implications of this distinction for insolvency law and restructuring law in the twenty-first century

Private equity in distress and the incentives of collateralised loan obligations

This article explores the problem that both modern private equity (PE) firms, and collateralised loan obligation (CLO) lenders to PE portfolio companies, have incentives to avoid a formal restructuring of PE portfolio companies in financial distress. The author is concerned that this may lead to negative social costs for suppliers, employees, customers and even government agencies... She explores how and why the problem arises, and the ways in which corporate and corporate insolvency law might be able to respond to it. Some suggestions are made, but it is accepted that any solution involves a sensitive balance that needs to be approached with considerable care

A case for interfering with freedom of contract? An empirically-informed study of bans of assignment

Do "bans on assignment" of trade receivables cause serious problems with receivables financing? Should Government render them ineffective? Two empirical investigations suggest that though there are good reasons for using BoAs, they cause disproportionate problems to SMEs needing to factor their debts, and there is a good case for interventio

A case for interfering with freedom of contract? An empirically-informed study of bans on assignment

This article is about clauses in the contracts between a business and its customer which prohibit the supplier assigning receivables arising under the contracts. These clauses are sometimes called “prohibitions on assignment”, sometimes “anti-assignment clauses”; but in the industry it seems most common to call them “bans on assignments” or BoAs. This is how we will refer to them in this article. There is an argument that BoAs do little for the customer while posing a serious problem for small suppliers, and only appear when the customer has the bargaining power to dictate the terms of the contract. This paper draws on empirical work to consider whether, notwithstanding English law’s commitment to commercial parties’ freedom to agree their own terms, there is a case for legislation to render BoAs in contracts for the supply of goods and services ineffective