Insolvency law has come a long way due to cork report
Pick one of the aims of a good modern insolvency law as promulgated by the Cork Committee in paragraph 198 of their seminal 1982 report. Critique that aim positing your analysis against the OFT investigation into the efficacy of the English and Welsh corporate insolvency provisions (where appropriate) and any other debates on the role and function of English and Welsh insolvency law and practice.
In some ways or the other insolvency law has come a long way due to cork report, and various other statutes and court decisions have come through to remedy the deficiencies and rescue the system.Kenneth Cork was serving as a chairman of the Cork committee (1982), the committee made recommendation for the law and practice regarding insolvency, bankruptcy, liquidation to formulate a comprehensive insolvency law procedure this was mainly done for the purpose harmonising the procedures, and to provide a formal legal procedure for business rescue the report emphasised a lot on the unified system of insolvency courts to be created to administer the laws, and that the creditors should have a greater voice in the choice of liquidator, new penalties and constraints on directors. Cork was trying to increase the chances of the survival of the company and to make it effective, he has also introduced the concept of administrator into corporate insolvency law, and Cork was also a plight of the unsecured creditors who generally received nothing in the end.The report recommendation produced a sea change in the foundation of corporate insolvency law regimes.The cork Committee gave effect to the Insolvency law 1986, The Act itself provides several mechanisms to facilitate rescue, most poignantly the administration order. Whilst of course the provisions were not enacted word for word, much of the proposals of the Cork Committee were given effect to by the Insolvency Act 1986. It has now been implanted in a new revised act of Enterprise Act 2002.
It is now almost twenty years since the insolvency law reform finally edged England towards a rescue culture. As Fletcher points out "From a purely political point of view reform of this area of law has consistently been allocated a low property. Insolvency Law has traditionally been perceived as arid, obscure and remote, there are 'no votes in it'."
One of the aims of the Cork committee which is of my focus here is “To recognise that the effect of insolvency are not limited to the private interests of the insolvent and his creditors, but that other interest of society or other groups in society are vitally affected by the insolvency and its outcome, and to ensure that these public interests are recognised and safeguarded." Clause 203 of the Cork report, emphasis on the business commercial, insolvencies which not only effect the interests of the people directly attached to it, for example the directors and shareholders and the creditors and employees but also on other interest such as suppliers, their failure upon the realisable value of stock, and goodwill can be disastrous, the modern approach is that there is a sit in by workers of their physical presence to ensure they have a secured job or the particular organisation was being controlled by some other organisation, it has been emphasised that one company being bankrupt can affect other people and community , and this should not be ignored. Vanessa sets out her own theoretical framework, which she calls the "explicit values approach", a broad-based, interdisciplinary approach that considers community and public interests in addition to the interests of creditors.' It incorporates aspects from some of the competing visions and establishes four benchmarks with which she evaluates English insolvency law and proposed reforms: efficiency, expertise, accountability and fairness".
There are various rescue procedure for the rescue of the companies, such as Receivership, CVA’s ,Administration Receivership, Creditor Voluntarily Liquidation, Compulsory Liquidation but the cork report has particularly given rise to the process of administrtaion.The process of the administration is a procedure to rescue the company and partnership, which cannot pay debts and will get into insolvency.Administration process gives a company opportunity to rescue because it freezes all actions of creditors; the IP’s can act as director. Under clause 498 of the Cork report the aim of cork was for this rescue was that, its objective is to rescue the company, to restore the profitability and to restore the employment of hundreds of employees, this can also be generating new job opportunities for others as well, for profitability and to carry the business where there is public interest, considering the business cannot be carried out under the current management. The process of administration is for large business and corporation and not for the small businesses; it’s just not considering shareholders and creditors but whole greatest interest of society as well. One of the aims of the cork vision with respect to the administration is that consideration should be given to the interest, not merely to creditors and shareholders’ but of the widest group of parties potentially affected by the insolvency, as Sir Kenneth cork wrote in the auto biography in the last stanza. That administrator is responsible to all the parties who were interested in the particular debtor company.
Under S (8) of the IA (1986) had to satisfy that the company is going in to liquidation, it is unable to pay its debt under S (123) of the IA (1986).Administration became popular by the approach of Moratorium which might have been seen a disadvantage to administration for example, the need against the suppliers of goods who had retained the title.
Many US commentators have inspired from the economic movement and in that case `Jackson’ , who supports the Creditor wealth maximization and the creditor bargain , he suggests that the collectivist , compulsory system as attractive to creditors in reducing strategic costs, increasing the aggregate pool of assets and as administratively efficient, from the above statement , Jackson is trying to say that the protection of the non payment creditor interest of other victims of the insolvency, i.e. employees and other member of the community ,it has been suggested that this is not the role of the insolvency law, however it is not seen as a independent goal of insolvency law. This approach should be as an independent goal of the insolvency law as cork report pointed it out that interest of the community and employees and manager do matter, as they are a part of the society , if safeguard against the employee’s protection will not be done or they will not get new jobs then how will the society survive. Alot of other factors can arise from a destruction of the society. High level of unemployment, pressure on the government to support them, the country’s economy will be affected; recession will take place, general community can have a health issues such as depression etc.
This vision has been a target of a lot of criticism; some of it has been expressed in strong words. It has been argued that the insolvency seen as debt collection process for the benefit of the creditors it fails to recognise the interest of, who are defined as the contract creditors for example the managers, suppliers, employees, their dependants and the community at large. The Vision of the Creditor wealth maximisation, fails to focus on the non-efficiency objectives that are often recognised in legislation. To see the sale of the assets of the insolvency objections fails to treat the insolvency as a problem of business failure and to place value on assisting firms to stay in the business this recognizes that why law gives them breathing space and that recognizes them to preserve the jobs to economic approach exemplified Jackson approach, That it has failed to recognise its own values, moral, political, social and personal. `Jackson’ approach has a major weakness of the creditor wealth maximisation that it lacks honesty on distributional issues. It has been suggested by `Warren’ that the insolvency law should be looking beyond the rights and interest of the parties which lacks those legal rights, never bear the costs of business failure. The approach not only effect the employees who can lose their jobs , and suppliers to can lose their customers but also the tax authorities whose business perspective entitlement maybe diminished and neighbouring traders whose business environment may be devalued, which can cause serious financial crisis.
There is another approach of the Broad based contractarian approach in which `Korobkin’ puts all the creditors and the all the relevant parties behind the veil of ignorance, `korobkin’ argues that the parties can choose two principles either principle of inclusion in that all the affected parties by the crisis would press their demand, and secondly is that rational planning and that to what extent can those people will be able to enforce their legal rights.
The communitarian vision approach is that it gives weighing interest to broad range of constituents, redistribution of the assets so high priority is given to the others as well, and community at large, the concern to protect the community militate the insolvency laws that compel the company creditors to bear the cost of financial failure, e.g. environmental cleaning cost. According to the cork aim the communitarian vision is not only for the interest of the society but commercial enterprises capable of contributing to the economic life of the country, for example the protection of the employee, fair dismissal, compensation, redundancy, fair trial. But this approach has difficulty defining the public good and offer simply masks behind which corporate managers exercise unrestrained social and economic power.Another argument which can be raised against is that the judges are not well placed to decide what should and should not be deemed suitable for the community; however it can be argued that the judges always work in the best interest of the public interest and community and it is a good approach to move away from creditors only.Cork approach has been considerable in providing the insolvency law in the best interest of community at large and not specifically for one person. Warren and Korobkin, agrees with the approach for the interest of the community.
The aim of the office of fair trading investigation is to make the market work well for the consumer and for all those people who are affected by the people by the insolvency. It is important for the office to see that the market works well, not only for those directly affected by the insolvency but for the whole economy, smooth entry and exit is an important factor for the feature of a competitive economy and has impact on productivity, fear of non recovery of debts can lead to reduced bank lending. Since unsecured creditors have lack of control, IP’s owed them responsibility and should charge less. The remedies suggested by the OFT could be setting clear objectives for the regularity regime , and changing some of the regulatory process and responsibilities, to increase the ability to meet those objectives, it has been suggested some detailed regulations to better align the interest of the IP’s with the interests of the IP’s with the interests of the wider creditor group, The lack of the clear regulatory focus which has led to extensive prescriptive regulation, it fails to address main market problem which leads to fees and action problem.These recommendations if enacted will benefit the wider economy, increase and trust and demand for good insolvency advice and impose no extra burden on tax payers.However the courts have not always been decided cases, towards effectiveness of administration as a rescue device, for example case of Powerdrill v Watson where the COA, here where employee kept in post after the administration came into effect, meaning they had to pay them wages and all the benefits so the critics noted that they had to dismiss the employees within the fourteen day period.
As they have been trying to balance with the needs of the creditor always , avoiding to take account the wider public, employee or trade-dependent interest that might be effects, `Nicolls’ LJ in Re Atlantic Computers Systems Plc that they should be taking into account everyone’s interest while coming up to a decision. In Re Olympia & York canary Wharf Ltd where Millett J said that the moratorium should not interfere with the rights of the administrator too much, it does not go with the cork vision of administration as the process looks broad array of interests affected by the potential insolvency.
The communitarian theory gives rise to the interest of the community at large but the biggest criticism it faces is that there the interest of the community are not easily defined at a stretch, there are however a unlimited community interest and that the every time the issue of community is raised it has to be dealt by court individually. Sir Kenneth Cork in his committee suggested various recommendation to shift away from the harsh insolvency rules and move towards a more modern insolvency law procedure who do not give preference to the creditors but also others aswell.Not all Cork Committee recommendations were the implementations introduced in the insolvency law but that is sure that it has had a great shift to wider implication for more protection and more efficient procedures although they have their criticism such as some delays or cost issues, but it has sure do consider the community interest in consideration and a shift can be seen , and it continue to do in the coming following years, for a more better modern insolvency law.