A principled justification for business rescue laws: A comparative perspective (part II)

Abstract

Desirable criteriaA. Reorganisation should only be permitted upon the establishment of a proper foundation Characteristic of attempts to promote business recovery are the realignment of competing interests and periods of grace.68Under the former, the very fact of prospective or current insolvency dictates that at that moment, the claims upon company funds cannot be satisfied from those funds.The interests that compete for those funds must therefore, to some extent, be the subject of realignment.Irrespective of which interests bear the realignment burden,6g what cannot be avoided is that some interest will suffer.Similarly, the enforcement of a period of grace during which those with competing claims are denied their otherwise legal rights, further operates to prejudice or detriment some interest.Underlying these phenomena is the assumption that affording the ailing company some respite from its legal obligations will place it in a position more amenable to financial recovery.Clearly, were the costs of the realignment of competing interests and period of grace to exceed the probability of the benefits from financial recovery, any such legislative interference with the free market would yield a net loss.Unless the society in question places a disproportionate emphasis on financial recovery as an end in itself, it is unlikely that this interference would bejustified.For this reason, if legislative intervention is deemed appropriate, a threshold of financial viability is necessary as a control against unnecessarily lengthening the dying days of an insolvent corporation.In other words, the potentially significant costs of imposing a realignment of competing interests and a period of grace could only * B. Com.

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