Promoting fairness in English insolvency valuation cases

• Date: 01 June 2020
• Author: Eugenio Vaccari
• Published date: 01 June 2020
• DOI: http://doi.org/10.1002/iir.1382

RESEARCH ARTICLE

Promoting fairness in English insolvency

valuation cases

Eugenio Vaccari

Lecturer in Company and Corporate

Insolvency Law, School of Law,

University of Essex, Colchester, UK

Correspondence

Eugenio Vaccari, Lecturer in Company

and Corporate Insolvency Law, School of

Law, University of Essex, Colchester, UK.

Email: e.vaccari@essex.ac.uk

Abstract

This is the second part of a comprehensive study on fair

measurement of value in English insolvency law. The

author has already demonstrated in a previous article

the importance of posing and responding to questions

about fairness in the insolvency process. That article

developed a specific framework to measure whether

assets and businesses are fairly valued in insolvency and

bankruptcy cases. The proposed communitarian,

fairness-oriented framework is based on a modified ver-

sion of Rawls, Finch and Radin's concepts of fairness. It

evidenced that, when assessed against fairness, none of

the valuation techniques currently available to the

courts are without limitations. Building on the findings

of this previous work, this article investigates whether

English case law: (i) achieves a fair valuation of the

debtor's assets and business; and (ii) protects interested

parties (mainly creditors and shareholders) who have

realistic prospects of receiving a distribution- against

unfair harm.

The author is greatly indebted to Nikhil Gokani and Onyeka Osuji for their insightful comments on earlier drafts of this

article, and to Lisa Meller for her constructive criticism of the manuscript and for her diligent proof-reading of this

work. This article covers literature and case law published before September 1, 2019. The usual disclaimer applies.

Received: 31 October 2019 Revised: 12 May 2020 Accepted: 21 May 2020

DOI: 10.1002/iir.1382

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and

reproduction in any medium, provided the original work is properly cited.

© 2020 The Authors. International Insolvency Review published by INSOL International and John Wiley & Sons Ltd

Int Insolv Rev. 2020;29:285–312. wileyonlinelibrary.com/journal/iir 285

1|INTRODUCTION

This is the second part of a comprehensive study on fair measurement of value in English insol-

vency law. The author has already demonstrated in a previous article

1

the importance of posing

and responding to questions about fairness in the insolvency process. That article developed a

specific framework to measure whether assets and businesses are fairly valued in insolvency

and bankruptcy cases. The proposed communitarian, fairness-oriented framework is based on a

modified version of Rawls, Finch and Radin's concepts of fairness. It evidenced that when

assessed against fairness, none of the valuation techniques currently available to the courts are

without limitations. Building on the findings of this previous work, this article investigates

whether English case law:

i achieves a fair valuation of the debtor's assets and business; and

ii protects interested parties (mainly creditors and shareholders),

2

who have realistic pros-

pects of receiving a distribution,

3

against unfair harm.

As explained in the above-mentioned article, fairness is a key policy objective of English

insolvency law and issues of fairness feature prominently in recent high-profile cases, thus

prompting a regulatory debate in the area. This article adopts the same communitarian,

fairness-oriented framework advocated in the article mentioned above, as this framework

underpins English corporate insolvency law

4

and recent policy documents do not depart from

this well-established approach.

5

It is acknowledged that not all of English insolvency law follows communitarian tenets. In

fact, English insolvency law to an extent reflects all the purposes laid out by the various con-

tractarian theories. Creditor wealth maximization—emphasizing insolvency law as a pool of

debt in which creditors assert their claims as a collective—is reflective to a larger extent of liq-

uidation, and to a lesser extent of administration. Meanwhile, the broad-based contractarian

approach encompassing both creditors and non-creditors to maximize aims are a reflection of

the administration process with the primary objective of rescuing the corporation. This article

shows that, while concepts of fairness have featured increasingly in courts' decisions, much still

needs to be done to ensure substantive protection of non-sophisticated interested parties in

insolvency valuation disputes. As a result, it argues that fairness-oriented approaches should be

made transparent and become part of English insolvency law and policy. The findings of these

articles suggest that the current de-regulatory approach in insolvency may fall short of achiev-

ing the policy goals advocated by the law.

This article makes several original contributions to the topic of measurement of value in

insolvency and bankruptcy law. First, it carries out the first (as far as the author is aware) com-

prehensive documentary investigation into reported decisions on valuation disputes in English

insolvency and bankruptcy cases. This substantial documentary analysis shows that English

courts adopt consistent practices when valuing assets and businesses. These practices are based

on traditional valuation methodologies, such as market tests and liquidation values. Yet, despite

a praiseworthy usage of flexibility and discretion to achieve procedurally fair outcomes, English

courts fail to consistently ensure that interested parties are treated in a substantially fair and

just manner.

The second key contribution of this study is its discussion on the impact of a fairness-

oriented framework, which addresses substantive as well as procedural issues, on judicial pow-

ers, and what is needed to make this approach transparent. In particular, this article

286 VACCARI