Background

• Author: United Nations Commission on International Trade Law
• Pages: 33-36

33

I. Background

1. Section one considers the obligations of directors of individual companies in

the period approaching insolvency, providing information on how those obliga-

tions are treated under current laws. While some jurisdictions impose obligations

on directors in the period approaching insolvency, the relative advantages and dis-

advantages of such regimes remain the subject of debate.16 Section one underlines

the need for taking early action when businesses face nancial diculty in order

to avoid rapid decline and to facilitate rescue and reorganization. It also notes that,

while many countries have refocused their insolvency laws to increase the options

for taking early actions, lile aention has been paid to creating appropriate incen-

tives for directors to use those options.17 Section one encourages the development

of appropriate incentives by identifying the basic obligations a director of an enter-

prise may have in the period approaching insolvency and the steps that might be

taken to discharge those obligations. ose obligations would become enforceable

only when insolvency proceedings have commenced.

2. In the enterprise group context, the issue of directors’ obligations in the

period approaching insolvency does not appear to be clearly or widely addressed

by national legislation. While the concept of enterprise groups has been con-

sidered and developed in many jurisdictions, the question of the obligations

of directors of one or more members of those enterprise groups remains some-

what uncertain.

3. Part three of the Guide, which addresses the treatment of enterprise groups

in insolvency, notes that enterprise groups are oen characterized by varying

degrees of economic integration (from highly centralized to relatively independ-

ent) and types of organizational structure (vertical or horizontal) that create

complex relationships between enterprise group members and may involve dif-

ferent levels of ownership and control. ose factors, together with adherence

to the separate entity approach and the widespread lack of any explicit acknowl-

edgement of the enterprise group reality in the legislation applicable to individual

enterprise group members, raise a number of issues for directors of enterprise

group members. Adherence to the separate entity approach typically requires

directors to promote the success and pursue the interests of the company they

 See section one, chap. I, paras. 8-10.

 Ibid., para. 6.