The Organisation of Capitalism and Corporate Bankruptcy Law Reform

At the time of writing, the Insolvency Service has launched a review of the corporate insolvency framework in the UK...

Presented by: Sarah Paterson, The London School of Economics

At the time of writing, the Insolvency Service has launched a review of the corporate insolvency framework in the UK (and has published many of the responses which it has received to the consultation), and the European Commission has published a proposal for a new Directive setting minimum harmonisation standards for debt restructuring law. Both initiatives propose the introduction of what corporate restructuring lawyers call “cross-class cram down”: the ability of the court to (literally) cram a restructuring plan down on a class which has dissented from it in voting. This idea is most developed in the US Chapter 11 procedure, where it has a long history. Perhaps inevitably, therefore, there is a temptation to lift the detailed mechanics of cross-class cram down from Chapter 11 and transplant them into the laws of England and Wales (and European member states).

This paper will advance two arguments as to why that is not the right approach. First, it will argue that the US system of cross-class cram down was designed with some very specific features of the institutional design of the US corporate bankruptcy system in mind, and that it will not translate well to a European setting. Secondly, and perhaps more fundamentally, it will argue that there is a great deal of historical contingency in the US design and that it may require overhaul in the US to adapt to the sociology of corporate bankruptcy bargaining in the twenty-first century. It is therefore hoped that the paper will not just be of interest to corporate bankruptcy and finance scholars, but also to anyone in the corporate and business law sphere who is interested in the relationship between the organisation of capitalism and corporate, commercial and business law’s design.