Background

• Author: United Nations Commission on International Trade Law
• Pages: 5-10

5

I. Background

1. Corporate governance frameworks regulate a set of relationships between a

company’s management, its board, its shareholders and other stakeholders and

provide not only the structure through which the objectives of the company are

established and aained, but also the standards against which performance can

be monitored. Good corporate governance should provide incentives for the

board and management to pursue objectives that are in the interests of the com-

pany and its shareholders, as well as fostering the condence necessary for pro-

moting business investment and development. Much has been done at the

international level to develop widely adopted principles of corporate governance

that include the obligations of those persons responsible for making decisions

concerning the management of an enterprise (in this part referred to as

“directors”3) when it is solvent.

2. Once insolvency proceedings commence, many insolvency laws recognize that

the obligations of directors will dier both in substance and focus from those appli-

cable prior to the commencement of those proceedings, with the emphasis on pri-

oritizing maximization of value and preservation of the estate for distribution to

creditors. Oen directors will be displaced from ongoing involvement in the com-

pany’s aairs by an insolvency representative, although under some insolvency laws

they may still have an ongoing role, particularly in reorganization. Part two, chapter

III of the Guide addresses several possibilities for the role the debtor may play in the

continuing operation of the business, including retention of full control, limited dis-

placement, and total displacement (recommendation 112 and paras. 10-18). e

chapter also addresses the obligations of the directors once insolvency proceedings

commence (recommendations 108-114 and paras. 22-34). Recommendation 110

species in some detail the obligations that should arise under the insolvency law on

commencement of insolvency proceedings and continue throughout those proceed-

ings, including obligations: to cooperate with and assist the insolvency representative

to perform its duties; to provide accurate, reliable and complete information relating

to the nancial position of the company and its business aairs; and to cooperate

with and assist the insolvency representative in taking eective control of the estate

and facilitating recovery of assets and business records. e imposition of sanctions

 e question of who may be considered a director for the purposes of this part is discussed in this section

below in chap. II, paras. 13-16. Although there is no universally accepted denition of the term, this part refers

generally to “directors” for ease of reference.