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Insolvency Theories and Approaches
Insolvency Theories and Approaches
FACULTY OF LAW
CIL/S2/JARC/2022-23
The historical development of insolvency law, and its evolving objectives. The distinction between
personal and corporate insolvency law: contrasts and consequences. Differing theories of insolvency
law.
The effect of bankruptcy and winding-up on real and personal rights; the principles of collectivity, and
of pari passu distribution. The wider framework of principles bearing upon insolvency law.
Different tests applied to establish insolvency for various legal purposes. The meaning and relevance
of a company's "inability to pay its debts", the "cash-flow" test and the "balance-sheet" test. Other
technical terminology and statutory definitions
(3) General survey of corporate insolvency procedures: liquidation, receivership, corporate rescue proceedings
Readings: (1-2)
Required:
Case Citations
1
(* required)
Reading (N.B. you are not required to read all of the following references: be selective, according to the
availability of the items listed)
Wider reading:
T.H Jackson: ‘The Logic and Limits of Bankruptcy Law’ , Introduction, Chapter 1, 2
E. Warren: ‘Bankruptcy Policy’ (1987) 54 U Chic L. Rev. 775
Baird, D G: ‘Loss Distribution, Forum Shopping and Bankruptcy: A reply to Warren’ (1987) 54 U Chic.
Rev. 815
Cork Interim Report, and Government Green Paper (1980) and White Paper (1984), see: Cmnd. Nos. 7967,
7968, 9175; comments: (198l) 44 M.L.R. 77; [1983] J.B.L. 72, 94, 200; [1984] J.B.L. 304.
Report on the Canadian Advisory Committee on Bankruptcy and Insolvency (the Coulter Report) 1986
The historical development of insolvency law, and its evolving objectives. Policy positions as revealed
by: case decisions, statutory provisions, pre-legislative documentation, doctrinal writings, etc. The
historic divergence between personal and corporate insolvency law: contrasts and consequences.
Bankruptcy Act 1880 (Jamaica)
Bankruptcy Act (T&)
(ii) The effect of bankruptcy and winding-up on real and personal rights; the principles of collectivity, and
of pari passu distribution. The wider framework of principles bearing upon insolvency law.
Different tests applied to establish insolvency for various legal purposes. The meaning and relevance
of a company's "inability to pay its debts"
:
(iii) General survey of corporate insolvency procedures
Definitions:
“Insolvency”, “bankruptcy”, “liquidation”, “receivership”, “trustee”,
A. “Insolvency”, “bankruptcy”:
“insolvent person” means an person who is not bankrupt and who resides, carries on business or has
property in Barbados whose liabilities to creditors provable as claims under this act amount to not less than
$4000.00, and
(a) who is for any reason unable to meet his obligations as they generally become due, and
(b) who has ceased paying his current obligations as they generally become due, or
(c) the aggregate of whose property is not, at a fair valuation, sufficient, or, if disposed of at a fairly
conducted sale under legal process would not be sufficient to enable payment of all his
obligations, due and accruing due;”
2
Insolvency Procedures:
A. Liquidation:
(a) BARBADOS
(c ) JAMAICA
(i) Part V of the Companies Act 2004 s. 214
Voluntary Winding up ss. 272 - 277 declaration of solvency
Members Voluntary Winding Up
Creditors Voluntary Winding Up
B. Receivership:
(a) Barbados
(b) Jamaica
C. Rescue Procedures:
3
1. Formal rescue vs. informal rescue
2. Rescue v. liquidation
(a) Barbados ss 4-13 BB&IA: receiving order devolves all property of bankrupt to trustee
(i) Bankruptcy and Insolvency Act 2001: There are two ways of becoming
bankrupt under the BIA: First, involuntary bankruptcy as the result of filing a
petition and the making of a receiving order, and secondly, voluntary
bankruptcy as a result of a debtor making an assignment for the general benefit
of the creditors.
(ii) In either circumstance, one of the prime purposes of the Act is to permit the
honest but unfortunate debtor obtains a discharge from his debts subject to
reasonable conditions. It provides for the bankrupt (both persons and
companies) to receive a full discharge of all his debts in order that the company
can be reintegrated into the business life of the society. Therefore financial
rehabilitation is the primary aim: the act allows an unfortunate debtor to secure a
discharge so that it can resume its place in business. Ss 146-147 Stay of
proceedings “moratorium”: ss 41-44
(iii) The Act provides for the orderly and fair distribution of the property among the
company’s creditors on a pari passu basis, and allows for an investigation into
the affairs of the insolvent company.
(iv) The Act provides for the setting aside of preferences, settlements and other
fraudulent transactions so that all creditors may share equally in the
administration of the insolvent company’s assets.(ss 66-74)
(v) The Act provides a regime whereby creditors of the bankrupt will pursue their
claims by collective action through a trustee so that the assets of the bankrupt
can be realized and distributed on an orderly basis subject to the priorities of
preferred creditors and the rights of secured creditors, persons who hold
property on trust or by virtue of valid contractual arrangements. (113, 118, 38)
(b) Trinidad: BIA : an act to revise the law relating to bankruptcy and to make provision for
corporate and individual insolvency: to provide for the rehabilitation of the insolvent
debtor..” s 5: Filing of petition for a receiving order; s187: appointment of trustee, Part V:
proposals; s55: stay of execution against debtor company,
(c) Jamaica: Insolvency Act:Part III : proposals, 237: appointment of trustees,
(d) British Virgin Islands Insolvency Act 2003 Part II s20: interim supervisor, moratorium
period s. 52
Readings:
*A Belcher, Corporate Rescue (Sweet & Maxwell, London 1997) pgs 12, 24-34
Baird: The uneasy case for corporate reorganizations (1986)15 Journal of Legal Studies 127
Refer back to Warren and Baird (supra) on the social cost of corporate failure
Dal Point &Griggs “A Principled Justification for the Business Rescue Laws: A Comparative Perspective”
(1996) 5 International Insolvency Review
Finsac: what happened in Jamaica? See the FINSAC website and Patrick Hylton’s speech:
http:/www.finsac.comnews/speeches/britishspeech.htm
4
Re Cumberland Trading
QUESTIONS & COMMENTS:
1. At the end of this seminar you should know the differing theories of insolvency law distinguish or
compare Warren, Baird, and Jackson. You should have a broad understanding of the meaning of
corporate insolvency, and the various insolvency procedures, especially liquidation and
receivership.
2. You must pay close attention to the Cork Report and Goode’s ten principles of corporate
insolvency law. Throughout the course we shall see how well Caribbean Commonwealth
insolvency regimes adhere to these principles.
3. Look for a definition of the pari passu principle, and consider the importance. Between real and
personal rights in insolvency law.
4. “Insolvency law is concerned with maximising the value of a given pool of assets to creditors, not
with how the law should allocate entitlements to the pool. Accordingly effect should be given to
existing pre-insolvency rights, and new rights should not be created.”
Critically discuss this statement with reference to the competing theories of corporate
bankruptcy law.
c.jacquelinecornelius