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Legislative Guide on Insolvency Law

Part Four - Directors' Obligations in the Period Approaching Insolvency (Including in Enterprise Groups)

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This section builds upon recommendations 255 to 266 of the first section, which address the obligations of directors of an individual company in the period approaching insolvency. Focusing on the nature of the obligations and the steps that might be taken to discharge those obligations (as established in recommendations 255 and 256), this section proposes how those recommendations could be revised for application to directors1 in the context of enterprise groups. Recommendations 257 to 266 of the first section continue to apply in the enterprise group context, however cross references in those recommendations to recommendations 255 and 256 should be read for the purposes of this additional section as references to recommendations 267 and 268 contained in this section. Additional recommendations (recommendations 269 and 270) have been included in this section to address the situation where a director is appointed to, or holds a managerial or executive position in, more than one enterprise group member and a conflict arises in discharging the obligations owed to the different members. This section should be read in conjunction with the first section and also in conjunction with part three of the Legislative Guide. In addition, in 2019, UNCITRAL adopted a legislative text, the “UNCITRAL Model Law on Enterprise Group Insolvency”, which seeks to facilitate insolvency proceedings for enterprise groups. That text and its accompanying Guide to Enactment provide a framework that is intended to streamline the conduct of such proceedings and assist in the development of a group insolvency solution, including by providing a regime for cross-border recognition of group insolvency solutions and the relief that might be needed to support their development. That Model Law and its accompanying Guide to Enactment provide information that will prove useful to the directors and other office holders that are the focus of this section.

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Obligations of directors of an enterprise in the period approaching the insolvency of that enterprise

1. This section focuses on the obligations that might be imposed upon those responsible for making decisions with respect to management of an enterprise when that enterprise faces imminent insolvency or insolvency becomes unavoidable. The aim of imposing such obligations, which are enforceable once insolvency proceedings commence, is to protect the legitimate interests of creditors and other stakeholders and to provide incentives for timely action to minimize the effects of financial distress experienced by the enterprise.

English

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