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The Anatomy of Corporate LawA Comparative and Functional Approach$
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Reinier Kraakman, John Armour, Paul Davies, Luca Enriques, Henry Hansmann, Gerard Hertig, Klaus Hopt, Hideki Kanda, Mariana Pargendler, Wolf-Georg Ringe, and Edward Rock

Print publication date: 2017

Print ISBN-13: 9780198739630

Published to Oxford Scholarship Online: March 2017

DOI: 10.1093/acprof:oso/9780198739630.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 08 December 2021

Transactions with Creditors

Transactions with Creditors

Chapter:
(p.109) 5 Transactions with Creditors
Source:
The Anatomy of Corporate Law
Author(s):

John Armour

Gerard Hertig

Hideki Kanda

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198739630.003.0005

A firm’s creditors have a dual role; under ordinary circumstances, they are no more than contractual counterparties. However, if the firm defaults on payment obligations, its creditors become entitled to seize and sell its assets and they become, in a meaningful sense, the owners of the firm’s assets. This dual role means that creditors may experience different agency problems at different points in time, and their contingent ownership will cast a shadow over how relations among participants in the firm are conducted, even while it is financially healthy. Consequently, every corporate law includes some provisions protecting corporate creditors. This chapter focuses on legal strategies specifically directed at creditors of corporate debtors, commonly justified as responding to particular problems stemming from the partitioning of corporate assets. This chapter considers the way in which the features of the corporate form give rise to such agency problems, and the legal strategies employed by major jurisdictions to address them.

Keywords:   creditor protection, financial agency costs, bankruptcy, reorganization, asset partitioning, wrongful trading, veil-piercing, capital maintenance, legal capital

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