Proper Functions of Insolvency Law - Essay Example

However, with insolvency law, this does not seems to be the case in cross-border insolvency cases, especially with the definition of the center of the debtor’s main interest (COMI). This concept of COMI has been used to allow the more powerful creditor to choose the regime that best suits their needs to maximize their return on credit. The following discussion is going to examine the theory of Professor Jackson and then consider whether he is indeed correct with insolvency law in the UK in domestic cases and then in consideration of cross-border proceedings where the EU regulations apply.

In the US insolvency law seems to be more geared toward the creditor regaining their money back, because in good faith they have lent it out. Jackson argues that the assets of the individual should be pooled together and divided amongst the creditors on a strictly economic basis to maximize the return of credit to the creditor. This would mean that the laws that offer this maximization of credit should be applied, even if there are different jurisdictions because the debt crosses state or international borders. Therefore this will be illustrated as the approach taken by the EU regarding the new trans-border insolvency regulations, rather than individual actions for each creditor in differing jurisdictions. The enforcement of individual creditors' needs versus the individual debtor's needs is the soft approach that the UK system of law takes and is NOT in the best interests of creditors because they should be able to get the maximum return of credit because they are already a loss. Jackson argues this hard economic approach, rather than an approach that considers the interests of the debtor. This is fair because the creditor in good faith has lent this money to the debtor expecting its return; therefore in the case that this is not possible the maximization of this return should be available. Therefore the question that has to be asked is what would the creditors agree to take before the insolvency and divided the assets this way, to get some return on the money lent in good faith, which is known as the creditor’s bargain: The Creditor’s Bargain Model was developed by Professor Jackson. The model in simplest terms was utilized to analyze almost any bankruptcy issue by asking the theoretical question: What would creditors agree to if they had been asked in advance of insolvency? Professor Jackson argued that normative bankruptcy principles should be viewed as resolving a limited common-pool problem caused by the execution and enforcement of individual creditor remedies when the debtor has insufficient assets to satisfy all claims. 

As one can see in the formula that Jackson uses the rights of the debtor are not considered, such as the right to a home and funds to live on. In the UK there is a lot softer system; however, in light of the cross-border insolvency regulations that the EU has introduced this will soon change for cases that transcend borders.

The following discussion will consider the SSGR and UK insolvency proceedings; however, with COMI being in force the protections provided to the consumer may be eroded in another jurisdiction where creditors have greater powers leaving the consumer high and dry because the certainty of UK law is no longer present when COMI can be inferred in a different jurisdiction. This is closer to the US insolvency proceedings that Jackson argues are harsh on the debtor, rather than the soft system of law that the UK and EU traditionally enjoyed. The key question to be raised here is whether these consumers who have paid for goods should be treated as creditors under the Insolvency Acts (IA) 1986 & 2000 or as consumers under the Sale and the Supply of Goods to Consumer Regulations 2002 (SSGR). The difficulty with insolvency is that the company is no longer running and the customer group is not going to complete their contract with the vendor, therefore the exact status of this group of customers need to be investigated, especially when the focus of the SSGR is to make the consumer the King of the transaction and properly protected by the law. There is also a secondary concern with the acts of the vendor, whereby he continued to take orders and advances on these orders when he was unsure if he was going to continue to trade, from the facts it seems that the vendor was aware of difficulties in providing the goods, due to not finding the correct suppliers whereby the logical course was liquidation.

In this case, the groups of customers are creditors because goods are owing, but this will not be in the same manner as a bank loan. At this point, the company is going to liquidate therefore the customers have the right to demand their money or goods as there are barred claims. Under the current insolvency laws, there are no preferential creditors, however, the role of these customers is slightly different as the company has retained advances that were fully refundable if no goods were supplied.