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Discussion Report

Published online by Cambridge University Press:  21 June 2006

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Abstract

Many participants pointed out that management is already under a duty to attempt a turnaround, including an out-of-court workout, in most European jurisdictions. At present, it seems unclear, however, when such a duty ‘in the vicinity of insolvency’ would run specifically to the company's creditors. It was emphasised that the ‘probability of insolvency’ test proposed by Eidenmüller is not intended to trigger formal insolvency proceedings; rather, it should only give rise to the directors' duty of care to creditors in managing the company – which, as the case may be, requires directors to continue or cut back business operations, to undertake restructuring and refinancing efforts and/or to initiate formal bankruptcy proceedings. The duty should not only require directors to take action but also to abstain from ‘risk-shifting,’ i.e., from increasing the company's business risk to the detriment of creditors. Because bankruptcy of small and medium-sized corporations often entails individual insolvency of directors, criminal and administrative sanctions – including director disqualification – should be applied to ensure effective deterrence.

Type
Articles
Copyright
T.M.C. Asser Press 2006

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