Insolvency and Stakeholding (CBR project)


Aims and objectives

The aim of this project was to examine the impact of insolvency laws on corporate stakeholders. It asked whether insolvency laws adequately protect the interests of stakeholder groups who frequently make asset-specific investments in the firm, but who rarely have claims of a property-rights nature against the assets in the event of insolvency. It also aims to discover how corporate rescue practices are affected by ‘bargaining in the shadow’ of legal provisions relating to insolvency.


Work commenced in January 1999. Since then, theoretical and conceptual studies of the law relating to creditor protection, secured credit and receivership have been carried out. Work has also been undertaken on the economic theory of social norms, and its application to the context of commercial law and corporate rescue. The empirical research has been divided into two phases. The first phase consisted of conducting interviews with lawyers, accountants and bankers involved with corporate insolvencies to discover their views about how the law operates in practice. Twenty-four interviews were conducted between February and July 1999. The transcripts provide a valuable source of qualitative data about the views of professionals on the conduct of UK insolvencies.

The second phase, which commenced in July 1999, consists of assembling information on case studies. The case-studies divide into two main categories: studies of large-scale restructurings and rescues under the ‘London Approach’, on the one hand, and studies of smaller-scale rescues. Twenty-two interviews have been conducted relating to eleven case studies raising issues relating to stakeholder rights. Issues of confidentiality have made it difficult to arrange case studies relating to large-scale corporate debt restructurings, either deterring potential subjects from participating in the study, or leading to delays concerning negotiations over confidentiality agreements. Nevertheless, it has proved possible to conduct interviews in relation to two cases of large-scale rescues. In addition to interviews being carried out, access to a large quantity of documentary evidence has been achieved, and has been analysed. The implications of the work for policy on insolvency law were also being addressed.


The research made use of law and economics analysis to evaluate incentive effects of legal rules operating under different systems of insolvency and/or bankruptcy law. Case studies of corporate failures and rescues within the UK were also being undertaken to evaluate the effects of business failure on three constituency groups: employees, tort claimants (including victims of environmental torts, product liability torts, and personal injuries) and communities in which businesses operate.

An additional focus of the research has been the consideration of new development in evolutionary theory and their application to economic organisation and the economics of law. To this end, a seminar on evolutionary theory was held in Cambridge in January 2000, organised by Simon Deakin and Oliver Goodenough (from Vermont Law School, and visiting professor in the Department of Zoology in Cambridge).

Results and dissemination

English insolvency law currently allows much of the decision-making power to be allocated to a bank through the grant of a floating charge, a framework which has been much-criticised in existing academic literature. Initial theoretical work suggested that there might be efficiencies to this concentration of decision-making power, which was supported by findings from the scoping interviews. These, and some of the case studies, emphasised the importance of pre-insolvency decision making by interested parties, which is facilitated through the concentration of rights.

The case studies point to the importance of informal rescue procedures, while at the same time indicating a role for more formal state institutions in ‘seeding’ or assisting the emergence of commercial norms. In the context of large firms, rescues have been effected according to the group of informal norms known as the ‘London Approach’, which in turn owes their existence to the intervention of the Bank of England during secondary banking crises in the 1970s.

In the wider context of corporate reorganisation, the recognition of stakeholder interests by insolvency law can be seen to produce a number of complex and, sometimes, unintended effects. A study of the role played by the law governing business transfers in the sale of Rover to Phoenix in 2000 suggests that employment law can significantly strengthen employee voice in the course of large-scale restructurings. Current work is developing the findings of the case studies to explain further the role played by employee and environmental interests in negotiations over troubled firms, and the potential for its beneficial enhancement through reform of the legal framework.

Project leader

  • Simon Deakin

Research fellow

  • John Armour

Research associates

  • Brian R Cheffins
  • Len Sealy (Faculty of Law, University of Cambridge)

Project status


Project dates



Working papers

Armour, J (2002) Law, innovation and finance: a review.CBR Working Paper No. 243, September.

Armour, J., Cheffins, B. and Skeel, D (2002) Coporate ownership structure and the evolution of bankruptcy law in the US and UK.CBR Working Paper No. 226, March.

Armour, J and Deakin, S (2001) Insolvency, Employment Protection and Corporate Restructuring: the effects of TUPE. CBR Working Paper No. 204, June.

Armour, J. (2001) The law and economics of corporate insolvency: a review. CBR Working Paper No. 197, March.

Armour, J. and Deakin, S. (2001) Insolvency, employment protection and corporate restructuring: the effects of TUPE. CBR Working Paper No. 204, June.

Armour, J. and Frisby, S. (2000) Rethinking receivership. CBR Working Paper No. 159, March.

Armour, J. and Deakin, S. (2000) Norms in private bankruptcy: the “London Approach” to the resolution of financial distress.CBR Working Paper 178, September.

Armour, J. (1999) Share capital and creditor protection: efficient rules for a modern company law? CBR Working Paper No. 148, December.

Journal articles

Armour, J. and Frisby, S. (2001) ‘Rethinking receivership.’ Oxford Journal of Legal Studies 21: 73-102.

Armour, J. and Deakin, S. (2001) ‘Norms in private insolvency: the “London Approach” to the resolution of financial distress’ Journal of Corporate Law Studies 1: 21-51

Armour, J. and Deakin, S. (2000) ‘The Rover case (2): bargaining in the shadow of TUPE’ Industrial Law Journal 29: 395-402.

Armour, J. (2000) ‘Who pays when polluters go bust?’ Law Quarterly Review 116: 200-204

Armour, J. (2000) ‘Share capital and creditor protection: efficient rules for a modern company law?’ Modern Law Review 63: 355-378

Book chapters

Armour, J. (2001) ‘The law and economics of corporate insolvency: a review’ in R.D. Vriesendorp, J.A. McCahery and F.M.J. Verstijlen (eds.) Comparative and International Perspectives on Bankruptcy Law Reform in the Netherlands (The Hague: Boom Juridische uitgevers), 99-138.

Armour, J. and Frisby, S. (2001) ‘Rethinking receivership’, in M.J. Whincop (ed.), Bridging the Entrepreneurial Financing Gap: Linking Governance with Regulatory Policy (Dartmouth).