Appropriate Treatment of Corporate Groups in Insolvency: A Universal View

Abstract

This paper proposes a conceptual framework according to which a suitable approach for treating corporate groups in insolvency, under domestic law, can be devised. Currently, the event of insolvency within a corporate group is often poorly dealt with under both domestic and international regimes. However, the matter demands special consideration, especially as ‘linking’ between affiliated group companies in their separate insolvencies may be necessary. This paper examines how ‘linking’ tools might be incorporated into domestic laws and ultimately harmonised, so that a level playing field for insolvencies within corporate groups (wherever they may take place) is established. It suggests three main features which are required for any workable solution. First, the system should be prudent and recommend linking tools only when these are needed. Second, clear and objective tests should be used to decide on any proposed mechanism, promoting certainty and clarity in judicial outcomes. Finally, the international scenario should be taken into account as well, in order to prevent possible manipulation by the debtors and use the benefits of treating the corporate group globally. Using these three concepts, the paper examines the various linking tools available, from procedural consolidation to contribution orders. It concludes by asserting that using the proposed concepts to construct the required linking mechanisms will help to achieve effective tools that are broadly accepted and provide an appropriate platform for dealing with corporate groups in their insolvencies.