The Customization Effect of Pre-arranged Sales under Anglo-American Insolvency Law and Practice: Accountability Deficits and Possible Remedies

Bo Xie (Lead / Corresponding author)

Research output: Contribution to journalArticle

Abstract

A strong paradox is emerging on both sides of the Atlantic when it comes to pre-arranged sales of troubled businesses as a going concern in an insolvency procedure. While tons of ink have been shed to explain distinctive features and comparative advantages of out-of-court and formal (court-sanctioned) restructurings these days there is an increasing trend to employ both with a view to achieve optimal outcomes. The accelerated judicial approach to business sales plaits the informal approach and the state-controlled statutory approach of dealing with corporate distress. This article investigates the extent to which formal insolvency procedures in the UK and the USA can be customized through pre-planning to achieve business sales and critically evaluates the challenges brought about by the plaiting. It is argued that the accelerated approach to business sales in insolvency tends to shift the key properties of the statutory procedure from creditor coordination and plan formulation towards verification of pre-arranged transactions and in doing so it obviates the need for judicial involvement. This way it creates a vacuum of control over the quality of business decision–making and eliminates the inclusiveness of the statutory procedure leaving ample room for rent-seeking by insiders. To mitigate these deficiencies the article suggests a more responsive approach with increased accountability and better equipped evaluation to control abuse.
Original languageEnglish
Pages (from-to)387-419
Number of pages34
JournalJournal of Corporate Law Studies
Volume19
Issue number2
Early online date22 Oct 2018
DOIs
Publication statusPublished - 3 Jul 2019

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insolvency
remedies
sales
deficit
responsibility
Law
creditor
rent
transaction
restructuring
abuse
planning
trend
evaluation

Keywords

  • Accelerated business sales
  • pre-packs
  • section 363(b) sales

Cite this

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title = "The Customization Effect of Pre-arranged Sales under Anglo-American Insolvency Law and Practice: Accountability Deficits and Possible Remedies",
abstract = "A strong paradox is emerging on both sides of the Atlantic when it comes to pre-arranged sales of troubled businesses as a going concern in an insolvency procedure. While tons of ink have been shed to explain distinctive features and comparative advantages of out-of-court and formal (court-sanctioned) restructurings these days there is an increasing trend to employ both with a view to achieve optimal outcomes. The accelerated judicial approach to business sales plaits the informal approach and the state-controlled statutory approach of dealing with corporate distress. This article investigates the extent to which formal insolvency procedures in the UK and the USA can be customized through pre-planning to achieve business sales and critically evaluates the challenges brought about by the plaiting. It is argued that the accelerated approach to business sales in insolvency tends to shift the key properties of the statutory procedure from creditor coordination and plan formulation towards verification of pre-arranged transactions and in doing so it obviates the need for judicial involvement. This way it creates a vacuum of control over the quality of business decision–making and eliminates the inclusiveness of the statutory procedure leaving ample room for rent-seeking by insiders. To mitigate these deficiencies the article suggests a more responsive approach with increased accountability and better equipped evaluation to control abuse.",
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AB - A strong paradox is emerging on both sides of the Atlantic when it comes to pre-arranged sales of troubled businesses as a going concern in an insolvency procedure. While tons of ink have been shed to explain distinctive features and comparative advantages of out-of-court and formal (court-sanctioned) restructurings these days there is an increasing trend to employ both with a view to achieve optimal outcomes. The accelerated judicial approach to business sales plaits the informal approach and the state-controlled statutory approach of dealing with corporate distress. This article investigates the extent to which formal insolvency procedures in the UK and the USA can be customized through pre-planning to achieve business sales and critically evaluates the challenges brought about by the plaiting. It is argued that the accelerated approach to business sales in insolvency tends to shift the key properties of the statutory procedure from creditor coordination and plan formulation towards verification of pre-arranged transactions and in doing so it obviates the need for judicial involvement. This way it creates a vacuum of control over the quality of business decision–making and eliminates the inclusiveness of the statutory procedure leaving ample room for rent-seeking by insiders. To mitigate these deficiencies the article suggests a more responsive approach with increased accountability and better equipped evaluation to control abuse.

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