Corporate Restructuring Versus Financial Resolution: Benchmarks for the Lawful Treatment of Creditors and Shareholders

Abstract

The paper explores the degree to which the recent European law of corporate restructuring may influence distributional decisions in financial resolution. Two fundamental issues arise: the minimum standard of protection for creditors and shareholders, and their treatment beyond this minimum standard.As to the first issue, the minimum distribution to these parties is based on their hypothetical treatment in a counterfactual. It is examined whether the liquidationbased counterfactual in resolution may be influenced by the concept of “next-bestalternative” in corporate restructuring.As to the second issue, while financial resolution allocates losses using a rather strict waterfall, corporate restructuring law may accommodate some broader flexibility, in particular if the novel relative priority rule is adopted. This degree of flexibility does not apply to financial resolution. But a certain parallel could be drawn between discretionary exclusions from bail-in in the BRRD and ad hoc derogations from priority rules in corporate restructuring. Bank resolution, bail-in, insolvency law, corporate restructuring, Directive 2019/1023/ EU, no creditor worse off, best interest of creditors, absolute priority rule, relative priority rule, standard of proof