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16 April 13

Pari Passu Rhetoric on the Scales

Professor Riz Mokal's 2001 exposition of the function of pari passu in English insolvency law (Mokal, R.'Priority as Pathology: The Pari Passu Myth’ [2001] CLJ 581-621) and, Mr Look Chan Ho's 2006 review of Professor Sir Roy Goode QC's third edition (Ho, LC. 'Goode's swan song to corporate insolvency law'[2006] EBLR 1727), amongst other work, highlight a schism between two camps. There are those who view pari passu as being 'fundamental', 'cardinal', 'a cornerstone', etc, and those, like the authors noted above, who view the role and reality of pari passu with more precision and as being merely one of a number of priority rules. There are of course different views of pari passu within this broader debate. 


Professor Vanessa Finch and Mr Ho have both offered explanations of how pari passu works in reality. In the second edition of her treatise (Finch, Vanessa. Corporate insolvency law: perspectives and principles. Cambridge University Press, Cambridge, 2009) Finch defines a  strong version of pari passu which operates so “that unsecured creditors as a whole, are paid pro rata to the extent of pre-insolvency claims.” Her weak version of pari passu operates so that “…such unsecured creditors share rateably within the particular ranking that draws distinctions between different classes of unsecured creditors (e.g. preferred employees and ordinary unsecured creditors).” Ho also divides his conceptualisation into two parts (see Goode's Swan Song - cited above). His orthodox version states that “all creditors of a particular pre-insolvency form (unsecured creditors as a group) share equally.” His multi-layered version operates so “creditors that are similarly ranked by insolvency law share equally within their given rank.” (Ho)

With these definitions and tensions in mind I thought it would be interesting to construct a table which compares pari passu rhetoric. The following table (and therefore this post) will grow as further sources are added: 



For Pari Passu Being ‘Fundamental’, ‘Cardinal’, ‘Cornerstone’ etc
Against Pari Passu being a substantive principle
“many of the existing distributional rules…are predicated on the pari passu grundnorm” (Milman Priority)
“the pari passu rule is a crude standard to apply in the legal system of the late 20th century.” (Milman Priority)
‘England’s very first bankruptcy statute….laid down the cardinal principle of distribution among creditors which, in theory, holds to this day’ (Goode Death)
“pari passu is only one of the many rules of priority…it is thus wrong to say that the pari passu principle underpins collectivity.” (Ho Swan)
‘equality of division among creditors is one of the  (if not the most) fundamental principles of the law of insolvency and is at the very heart of the whole statutory schemes of bankruptcy and winding up’ (Keay & Walton)
“although the pari passu rule is retained there is little point in placing too much reliance on it if the company’s assets have been dissipated to such an extent that a faithful application of that principle of distribution only secures an equality of misery.” (Milman Priority)
“The pari passu principle is often said to constitute a fundamental rule of corporate insolvency law” (Finch 2nd Ed).
“We consider that the principle of pari passu distribution of the insolvent’s estate should continue to form a cornerstone of any new insolvency legislation…We accept that no one should be able to contract out of insolvency law, and pari passu distribution in particular.”  (Cork Report)
“Equality is equity. That maxim is a theme of bankruptcy administration – one of the cornerstones of the bankruptcy structure. All persons similarly situated are entitled to equality in treatment in the distribution of the assets of the bankrupt estate” (Seligson preferences)
“It would be a serious misconception to suppose that the pari passu principle operates in a comprehensive way…..the pari passu principle is applied sequentially in relation to certain, discrete groups of claims, ranked into categories according to a fixed system of priorities” (Fletcher 3rd ed)
“107 Distribution of company’s property 
Subject to the provisions of this Act as to preferential payments, the company’s property in a voluntary winding up shall on the winding up be applied in satisfaction of the company’s liabilities pari passu and, subject to that application, shall (unless the articles otherwise provide) be distributed among the members according to their rights and interests in the company.” (IA86)
‘the pari passu principle, rather than being the all-prevailing rule that it is supposed to be, is in fact more like a convenient default principle’ (Fletcher 3rd ed)
“It is a cardinal principle of insolvency law that the claims of creditors shall rank pari passu and that dividends shall be distributed rateably: share and share alike.” (Goode Favourable)
“In the light of these pronouncements from the highest courts in the land in favour of the pari passu rule [British Eagle, etc] it is perhaps surprising that attempts to circumvent it have proved so successful in practice in the 1970s.” (Milman Priority)
“Since the paru passu principle has been recognised so widely and for so long as vital, and since it serves such desirable aims as orderliness in liquidation and fairness to all creditors, any deviation from it must be a cause for concern.” (Mokal Myth)
“In many jurisdictions three developments have occurred which together have largely undermined the pari passu rule.” (Goode Favourable)
“the pari passu rule although fundamental is not immutable and its seems to me that in this case its application has necessarily to be restricted if section 176A is to have its desired economic effect.” (Patten, J in Re Airbase)

“in the face of these provisions the pari passu rule is necessarily modified so as to differentiate between unsecured creditors with no form of security and the unsecured claims of secured creditors…the pari passu rule although fundamental is not immutable and its seems to me that in this case its application has necessarily to be restricted if section 176A is to have its desired economic effect.” (Patten, J in Re Airbase)

“…they can be said to fall outside the pari passu rule rather than constitute true exceptions” (Finch 1st Ed)
“in the end one suspects that the pari passu rule has been adopted by the courts as a convenient ‘fall back’ position that avoids the necessity of making difficult choices where the legislature has failed to take the initiative.” (Milman Priority)

British Eagle International Air Lines Ltd v. Campagnie Nationale Air France [1975] 1 WLR 758, Lord Cross: “such a ‘contracting out’ [of pari passu] must, to my mind, be contrary to public policy.”
“Is Pari Passue Passe?” (Finch passe)
“…insolvency law should provide, as a general principle, that similarly ranked claims are paid pari passu.” (UNCITRAL, 2005).
“The principle of pari passu distribution…has been gravely diminished, first by the extensive range of security rights and analogous devices that have evolved over the years, and, secondly by a massive expansion of the range of debts made preferential by statute.” (Goode 3rd)
“The most fundamental principle of insolvency law is that of pari passu distribution.” (Goode 3rd)
“One cannot help wondering why Goode has to resort to highfalutin insistence on pari passu’s role, when all he means is the principle only has some practical importance and only in a negative sense. It is difficult not to see such repeated and emphatic assertions about the principle’s centrality, fundamentality and all-pervasiveness as rather hyperbolic.” (Ho Swan)
“It is a fundamental principle of insolvency law…that the debtor’s assets are to be distributed pari passu.” (Goode 3rd)
“Goode’s argument merely boils down to this: Many people say it…Instead of being a victim of the echo chamber of authority, Goode should be the powerful voice of reason that punctuates the echo chamber. For good arguments rest on reason, and not merely ducking behind authority. Authority cannot militate indefinitely against reason. Reason is like quicksilver – it will stream to the surface through any available opening. When reason streams upwards, the pari passu authority evaporates into the ether.” (Ho Swan)
“The pari passu principle is one of the most fundamental principles of corporate insolvency law.” (Goode 3rd)
“In sum, saying the pari pass principle is fundamental does not make it so. Saying pari passu underlies insolvency practice does not make it so. Avowing pari passu’s importance merely because others do so certainly does not make it so. And though pari passu’s apologists may continue to calcify their self-affirming echo chamber, their voices ricochet aimlessly in the hollow within.” (Ho Swan).
“The principle of pari passu distribution if assets among ordinary unsecured creditors…has been developed by the courts into a fundamental concept of insolvency law…” (Goode 3rd)
the principle of pari passu distribution has been greatly eroded during the last century or so until today it remains as a theoretical doctrine only, with scarcely any application in real life.” (Cork Report)
“The normal rule in a corporate insolvency is that all creditors are treated on an equal footing – pari passu – and share in insolvency assets pro rata according to their pre-insolvency entitlements…” (Finch Security).
“but now pari passu is not a rule or a restriction or a standard.” (Mokal Myth)
Pari passu as “the foremost principle in the law of insolvency around the world.” (Keay & Walton Preferential)
“The pari passu principle, then, is one manifestation of formal equality in insolvency law. However it is not the only one” (Mokal Myth)

“It is argued here that the pari passu principle is rather less important than it is sometimes made out to be.” (Mokal Myth)

“It [pari passu] does not fulfil any of the functions often attributed to it.” (Mokal Myth)

“It [pari passu] does not constitute an accurate description of how the assets of insolvent companies are in fact distributed.” (Mokal Myth)

“the principle has nothing to do with fairness in liquidation.” (Mokal Myth)

Picture Credit: http://rebeccasward.com/images/thingz/3d_pie_chart.jpg

15 April 13

The UK has opted in to the EU Commission’s proposals to amend the Regulation on insolvency proceedings

The European Commission published its proposals to reform the existing EU insolvency Regulation in December 2012. Business Minister Jo Swinson has today announced that the UK Government has exercised its right under the EU Treaty to opt-in to the Regulation, and will participate fully in negotiations and implementation of the Regulation in its final form.


In a written ministerial statement laid in Parliament today, Jo Swinson said that the Government considers that it is in the UK’s interest to opt into the proposal, as it will be of general benefit to businesses and creditors of insolvency proceedings in the UK and the EU.

“I believe the proposed amendments to the Insolvency Regulation will benefit UK businesses affected by insolvency in the EU. The proposals support business rescue by expanding the scope of the Regulation to restructuring and pre-insolvency proceedings. Bankruptcy tourism will be tackled through new rules on determining jurisdiction and increased transparency for creditors. In addition, the proposals include new rules on publication of insolvency information via free online registers across the EU, in line with our Digital by Default strategy.”

You can view a full copy of the Minister’s written statement here (PDF, 5 Kb) .

The responses received to the Call for Evidence, conducted by the Insolvency Service in February 2013, are published today and can be found here (PDF, 2.5 Mb) .

11 April 13

An IEAF update from Professor Omar

A – Upcoming Events

 

 

1. IEAF Annual Conference (Paris, 25-26 September 2013) –Call for Papers (Reminder)

 

 

Expressions of interest are invited for the delivery of papers on the conference theme, which continues the theme of the Trier Conference and will be: Revision and Reform of the European Insolvency Regulation. Any interest for the few remaining places should be communicated asap to Paul Omar, Secretary, Academic Forum by e-mail: <paul.omar@ntu.ac.uk>. The organisers will communicate shortly thereafter those papers that have been selected for inclusion within the conference.

 

 

Five Travel Grants sponsored by Edwin Coe LLP are available to enable attendance and delivery of papers at this conference. Further information is available in the News Section of the Academic Forum website. The deadline for applications will be 31 May 2013 [NB. Not 15 February as reported in the last newsletter].

 

B – Upcoming Events (Cognate Associations)

 

 

2. INSOL International Academics Group (The Hague, 18-19 May 2013)

 

The 15th meeting of the INSOL International Academics Group is being organised to coincide with the 2013 INSOL International regional conference in The Hague. The academics will meet on the weekend ahead of the main conference, on Saturday 18 and Sunday 19 May 2013. An agenda has now been isued incorporating some of the themes included in the call for papers in the following subject areas:

 

 

  • Revision of the EU Insolvency Regulation;
  • New ideas and emerging best practices in the treatment of individual insolvency (including, but not limited to: issues concerning consumer bankruptcy; court-based versus administrative procedures; repayment plans – vices and virtues);
  • Secured transactions: perils and pitfalls;
  • Sovereign debt in the 21st Century: challenge and response;
  • Special focus on Eastern European insolvency issues;
  • Caribbean insolvency Issues.

 

 

In addition, the conference will also contain a joint session with the INSOL Fellows and participants in the Global Insolvency Practice Course in 2013 as well as a Research Forum providing an opportunity for those currently undertaking a research project (including PhD students currently engaged in doctoral studies) to deliver a brief account of their work and to generate discussion.

 

3. NACIIL Colloquium (Amsterdam, 20 May 2013)

 

Professor Bob Wessels of Leiden University, who is the Chair of the Netherlands Association for Comparative and International Insolvency Law (NACIIL), an association that is active in the promotion of interest in and knowledge of comparative and international insolvency law, is organising a conference after the conclusion of the INSOL International Academics Group Meeting in The Hague to allow for further discussion on insolvency topics. The NACIIL meeting will take place in Amsterdam on Monday 20 May 2013. Details on the programme may still be obtained from <bwessels@bobwessels.nl>, who will be able to indicate if places are still available for the day’s session.

 

In any event, for more information about NACIIL, please visit their website at: <http://www.naciil.org>.

 

 

4. Leeds Law School Colloquium (Leeds, 12 June 2013)

 

Professor Gerard McCormack of Leeds and the Centre for Business Law and Practice at the University of Leeds will be hosting a one-day seminar at the University on Wednesday 12 June 2013 as part of a joint project together with the Centre for Business and Insolvency Law at the Nottingham Law School. The intention on this occasion will be to chart the major issues affecting the review of the EIR and anticipate some of the issues that could arise in its application. The conference is run with the active support and input of key stakeholders such as private sector practitioners and the UK Insolvency Service and will include speakers from the European Commission, the Insolvency Service and leading international law firms as well as from academia in the United Kingdom and elsewhere. Further information will be available nearer the time to be posted on the IEAF website.

 

 

5. Nottingham Inaugural Lecture and Law School Seminar (Nottingham, 10-11 September 2013)

 

The Nottingham Law School will be arranging a one-day symposium on Wednesday 11 September dealing with topical issues, including EIR and, inter alia, issues of sovereign debt, international benchmarking and standards as well as regulatory approaches in insolvency. This meeting has been timed to coincide with the delivery on Tuesday 10 September of an inaugural lecture by Paul Omar, newly appointed Chair of International and Comparative Insolvency Law at the Law School, who will be speaking on the topic of the history of and future perspectives on cross-border co-operation in insolvency. The EIR will of course receive a mention, given its high-profile as one of the few initiatives in this field with a history providing a measure of the success of cross-border insolvency texts. Further information will be available nearer the time to be posted on the IEAF website.

 

C – Past Events

 

6. Joint Insolvency Conference 2013 (Trier, 18-19 March 2013)

 

 

A joint conference was held on Monday 18 – Tuesday 19 March 2013 in conjunction with the Academy of European Law, Trier, Germany at the premises of the ERA in that city in order to chart the major developments in respect of the European Insolvency Regulation in recent years, particularly in light of the voluminous case law it has generated as well as the current attempts and proposals aimed at reforming the text. The conference attracted some 90 participants representing some 15 jurisdictions with topics being discussed at the conference including the scope of the text and definition of “insolvency”, the concept of COMI, coordination and communication, the relationship between main and territorial proceedings, the recognition of (pre-)insolvency proceedings, the publication of opening decisions, related actions and interplay with the Brussels I Regulation, cross-border security and rights in rem as well as the insolvency of groups of enterprises. A conference write up is being prepared by the INSOL Europe Technical Officers, Myriam Mailly and Emmanuelle Inacio, for publication in the Eurofenix magazine.

 

 

D - Book Projects/Conference Reports

 

The Nottingham 2012, Brussels 2012 and Trier 2013 conference booklets have been provisionally scheduled to appear in 2013 and further information will be circulated on their availability in due course. In the interim, INSOL Europe and the Judicial Wing have published the following items, which may be of interest: a text on “Revision of the European Insolvency Regulation: Proposals by INSOL Europe” (ed. R. van Galen) and one on “The Remuneration of the Insolvency Representative in Europe” (ed. H. Vallender), both published in mid-2012. Information about the series, including all the conference proceedings booklets available, may be viewed at: <http://www.insol-europe.org/publications/technical-series-publications>.

 

E - Edwin Coe Prizes for Outstanding Legal Scholarship

 

Edwin Coe LLP are an eminent firm based in the United Kingdom with a specialisation in insolvency restructuring. They have agreed to sponsor the activities of the Academic Forum of INSOL Europe in 2007-2013. As part of this sponsorship, prizes are available so as to enable the recognition of legal scholarship by academic scholars and researchers specialising in insolvency law. The prizes will be awarded by open competition and are available for sole or jointly authored published books, but not edited collections (i.e. contributed essays from a number of authors). The books entered into the competition must have been published within 24 months prior to the end of the closing date of the competition (30 June 2013) and entries are subject to the rules published in the News Section of the Academic Forum website. Winners of the prizes must undertake that subsequent publicity for the book, including any mention in publicity material or on a website or in any subsequent edition of the text, will note the receipt of the Edwin Coe Prize.

 

F – Newsletter Appeal for Information

 

 

If recipients of this newsletter wish to advertise conferences, workshops or other insolvency-connected events as well as note research projects and possible collaborations, either in future editions of the newsletter or on the INSOL Europe Academic Forum website or Facebook page, please contact the Secretary at: <paul.omar@ntu.ac.uk> or <khaemwaset@yahoo.co.uk>.

 

11 April 13

INSOL Event - The Hague

INSOL 2013

 

19-22 May 2013, The Hague, The Netherlands

Only ten days to go to the final booking deadline for the Ninth World INSOL International Congress

In less than a month you could be enjoying a walk in the Spring sunshine in The Hague prior to attending the Welcome Dinner at the World Forum, where you will meet old friends and meet new colleagues.  Please register now as there is only three weeks left to register to attend INSOL 2013, and we have a finite number of delegate places available.  If you do not receive a confirmation of your booking within forty-eight hours please contact the INSOL office to make sure your registration has been received. We already have over 550 registrations with delegates attending from over 40 countries so it will be a truly fantastic international audience and your once in every four years opportunity to take part in such a pre eminent international gathering of the profession.

Don’t forget to take a look at the ancillary programme  as well to see if you would like to attend any of the interesting additional programmes on offer.

The Technical Programme covers key topics of interest with excellent speakers from the fields of banking, the judiciary, academics, as well as practitioners and turnaround professionals taking part.  Our Keynote speaker on Monday 20th May is Paul Tucker, Deputy Governor, Financial Stability, Bank of England.  The technical programme will be interactive with the audience through stimulating question and answer sessions, so please come to INSOL 2013 to hear what the profession’s experts and opinion formers have to say and make your own views know as well. We value the vital input that our delegates make.

The showcase of the Congress is our case study film A tale of two businesses one good….one bad…. Kindly sponsored by Alvarez & Marsal LLC and Skadden, Arps, Slate, Meagher & Flom LLP. Wednesdays proceedings will differ from our normal style with a work out session to review the facts as presented and determine the success or failure of the business.

Book now to ensure your place

05 April 13

Some old resources for an Easter break browse

Some Historic Insolvency Books Online