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References
See generally Henry Hansmann, Reinier Kraakman, and Richard Squire, ‘Law and the Rise of the Firm’, 119 Harv. L. Rev. 1333 (2006).
Ibid., at 1387.
Henry Hansmann and Reinier Kraakman, ‘The Essential Role of Organizational Law’, 110 Yale L. J. (2000) p. 387 at p. 396.
On the variety of ex post and ex ante forms of creditor protection in corporate law, see Gerard Hertig and Hideki Kanda, ‘Creditor Protection’, in Reinier Kraakman, et al., The Anatomy of Corporate Law (Oxford, Oxford University Press 2004) pp. 71–99.
Wolfgang Schön, ‘The Future of Legal Capital’, 5 EBOR (2004) p. 429.
Henry Hansmann and Reinier Kraakman, ‘Toward Unlimited Shareholder Liability for Corporate Torts’, 100 Yale L. J. (1991) p. 1879.
The most dramatic recent example in my view concerns US bankruptcy case law on the odd doctrine of “substantive consolidation,” which governs when a bankruptcy court can set aside some or all of the entity structure of a corporate group to leave one big pool of assets for division among all of the group’s creditors. In the unusual recent case of In re Owens Corning, 316 B.R. 168 (D. Del. 2004), a corporate group consisting of a parent and its subsidiaries faced two principal groups of unsecured creditors, tort creditors (asbestos victims) and a syndicate of bank lenders. Most of the group’s assets were held at the subsidiary level, and the banks held cross-guarantees from each of the subsidiaries as is customary. As a result of this structure, the banks enjoyed priority over the tort creditors in the distribution of the company’s assets. The District Court chose to substantively consolidate the group, with the effect of annulling the banks’ cross-guarantees. The effect of this decision was to leave the status of corporate groups highly uncertain in bankruptcy proceedings, even when the group had meticulously separated the assets of its individual members. A later Appeals Court decision has reversed the District Court ruling and restored a much narrower construction of the substantive consolidation doctrine (419 F.3d 195 (3d Cir. 2005)). Nonetheless, one suspects that the District Court would not have been tempted to disregard corporate formalities in the first instance were the case not about dividing assets between tort and contract creditors.
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Kraakman, R. Concluding Remarks on Creditor Protection. Eur Bus Org Law Rev 7, 465–471 (2006). https://doi.org/10.1017/S1566752906004654
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DOI: https://doi.org/10.1017/S1566752906004654