The Paper deals with the incentive structures for directors in the vicinity of insolvency. Distinctions between closely held and public corporations are discussed as well as the application of business judgement rules to decisions of directors in the vicinity of insolvency, in particular with regard to the solvency test. Finally stress is laid on procedural issues such as enforcement of director's liability without formal insolvency procedures.

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.

Protection of corporate creditors has become an important topic within the European Union. At EU level, discussion has been sparked by widespread dissatisfaction with some very rigid and cumbersome provisions, and even with the whole concept of the Second Company Law Directive. At EU Member State level, three landmark decisions by the European Court of Justice – Centros, Überseering, and Inspire Art – opened the way for an all-out competition between the different company forms provided for by national company laws. At both levels, albeit for different reasons, British company law – and in particular the absence of any legal capital in the private limited company – acts as the main driving force putting pressure on the concept of legal capital as enshrined in the Second Directive, which in turn was modeled on German company law notions.

The High Level Group of Company Law Experts provided the appropriate starting point for the present discussion by dealing not only with the raising and maintenance of capital, but by also taking up the wrongful trading remedy (s. 214 British Insolvency Act) and the equitable subordination remedy. This present article builds upon this broader approach, seeking to develop a conceptual framework for an efficient creditor protection regime within a purely national setting, i.e., leaving aside the additional problems created by pseudo-foreign companies and the impact of the provisions of the EU Treaty for the free movement of companies on national company laws.

Given the rich variety of creditor protection mechanisms within EU Member States, any attempt at developing even a high-level framework has to start by identifying the relevant risks against which creditors need protection and the required extent of such protection. Against this backdrop, any jurisdiction has to make a choice whether to rely mostly on creditor self-help or on mandatory protection rules. In principle, since all mechanisms for creditor self-help are inherently costly and fail to protect involuntary (tort) creditors and “weak” contractual creditors as effectively as they do “strong” contractual creditors, there is a case for mandatory protection rules. The article then goes on to review the different well-known mechanisms for mandatory creditor protection. In line with earlier findings and the criticism mostly from English scholars, the case for a German-style legal capital regime turns out to be weak, at best.

On the other hand, since shareholders' incentive to act to the detriment of creditors increases with the company becoming financially distressed, it is important to provide for mechanisms that will work to effectively control any opportunistic behavior on the shareholder's part. In this respect, equitable subordination of a shareholder's right as well as the wrongful trading remedy may serve important roles. The article concludes by taking a brief look at the resultant high-level framework for an efficient creditor protection regime.

Rules on corporate creditor protection are asymmetric rules. Rules which could increase the welfare of one class of creditors could at the same time reduce the welfare of another class. Different classes of creditors often coincide with different social groups (unskilled workers, small trade creditors, etc.). As we do not have an universally accepted social welfare function, the results of the comparisons between gains and losses caused by each rule are, in terms of overall welfare (efficiency), indeterminate. In conclusion, the choice of the best system of creditor protection is not a matter of efficiency but of fairness and political judgments. From this viewpoint, many arguments can support the preference for a rule (the net system with its formal test) rather than a more flexible standard.

The European framework for creditor protection has undergone a remarkable transformation in recent years. While the ECJ's Centros case and its progeny have introduced free choice with respect to the State of incorporation, and hence the substantive company law regime, the European Insolvency Regulation has implemented uniform conflict of laws rules for insolvencies. However, this regime has opened up some forum shopping opportunities. This article analyzes possible consequences of regulatory competition and forum shopping for creditors and argues that the ‘insolvencification’ of corporate law creditor protection mechanisms will not enable national policymakers to impose their respective ideas about creditor protection on firms in a fully-fledged manner.

This comment focuses initially on the way in which cross-border mobility plays a central role in shaping creditor protection regimes across the European Union. We conclude with some preliminary observations about the European Insolvency Regulation and the potential impact of forum shopping on creditors and firms.

Following Mülbert's presentation, the first discussion concentrated mainly on the efficiency of legal (minimum) capital in contrast to alternative solutions for creditor protection.

Summarizing the many thoughtful papers presented at this conference is a difficult task for an outside observer of European law reform. In lieu of bad comments on good papers, I offer instead my own observations on several of the conference's principal themes.