Year: 2025
Type: article
Abstract: Traditional insolvency duties are designed to protect creditors, yet in times of financial crisis, they may lead to a wave of bankruptcies. This Article challenges the assumption that director insolvency duties always serve creditor interests, arguing that they can generate “congestion costs”—a surge in bankruptcy cases that overwhelms courts and floods markets with distressed assets at fire‐sale prices. Drawing on a comparative analysis of legal responses in Germany, Australia, and the United States during the COVID‐19 pandemic, this Article demonstrates how the presence or absence of rigid insolvency duties can affect bankruptcy congestion and premature filings during times of crisis. To address these concerns, this Article proposes a designated carve‐out, providing temporary relief from insolvency duties during macroeconomic shocks. Where legal reform is impractical, it suggests alternative contractual solutions such as automatic debt deferrals. By integrating macroeconomic considerations into insolvency law, this Article reframes the role of director duties in corporate governance and financial stability. This Article concludes that flexible insolvency frameworks are essential to building crisis‐resilient markets.
Source: American Business Law Journal
DOI: 10.1111/ablj.70007
Author: Adi Marcovich Gross
Institutions: Reichman University, University of Pennsylvania
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $2,900
OpenAlex ID: W4415490129
FWCI:
Cites:
Cited by:
Related to: