London School of Economics and Political Science, University of London · United Kingdom
Rethinking the Role of the Law of Corporate Distress in the Twenty-First Century
This paper, originally published as an LSE Law, Society and Economy Working Paper, examines the evolving landscape of corporate distress. It proposes a new classification of this area of law, distinguishing between 'insolvency law' and 'restructuring law'. While the traditional view, as articulated by Thomas Jackson, emphasizes bankruptcy law's role in preventing individual creditors from seizing assets and thus maximizing overall returns, this paper argues that this perspective primarily applies to insolvency law. Restructuring law, on the other hand, is presented as a distinct mechanism focused on facilitating new agreements among stakeholders when a company's existing financial structure is no longer viable but the business itself has potential for continuation.
The paper critiques the tendency in some legal systems to conflate these two distinct functions under a single umbrella term. It highlights that the UK legal system, until recently, had a clearer separation, with 'restructuring' emerging as a more defined field. By differentiating between insolvency and restructuring, the paper aims to provide a clearer understanding of how the law facilitates the efficient allocation of capital within the economy. The ultimate goal, for both branches of corporate distress law, is to promote economic growth.
