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Legal Capital: an Outdated Concept?

Published online by Cambridge University Press:  21 June 2006

John Armour
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Abstract

This paper reviews the case for and against mandatory legal capital rules. It is argued that legal capital is no longer an appropriate means of safeguarding creditors' interests. This is most clearly the case as regards mandatory rules. Moreover, it is suggested that even an ‘opt in’ (or default) legal capital regime is unlikely to be a useful mechanism. However, the advent of regulatory arbitrage in European corporate law will provide a way of gathering information regarding investors' preferences in relation to such rules. Those creditor protection rules that do not further the interests of adjusting creditors will become subject to competitive pressures. Legislatures will be faced with the task of designing mandatory rules to deal with the issues raised by ‘non-adjusting’ creditors in a proportionate and effective manner, consistent with the Gebhard formula.

Keywords

corporate lawcreditor protectionlegal capitalregulatory competition
Type
Articles
Information
European Business Organization Law Review (EBOR) , Volume 7 , Issue 1 , March 2006 , pp. 5 - 27
Copyright
T.M.C. Asser Press 2006

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