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– 61 – Transcripts of Capital and Creditor Protection Session Paper: Jean-Marie Nelissen Grade and Matthias Wauters Respondent: Jonathan Rickford (British Institute of International and Comparative Law) Chair: Didier Martin (Bredin Prat, Paris) Rapporteur: Anneleen Steeno (K.U.Leuven) A. Abstract Current situation. The current situation of creditor protection is not optimal. The Second Directive for public companies imposing restrictive rules as to capital formation and capital maintenance does not provide adequate creditor protection. The capital requirements are not linked to the future business of the company and the distribution limitation is entirely based on a balance sheet test, which is backward-looking. For private companies the tendency exists, both at national and European level (draft Regulation on the Statute for a European Private Company) to create a company form without legal capital regime. However, the proposals on capital in the European Private Company proposal are found inadequate. In the field of corporate law there is a problem with the UK Limited operating in the context of a commercial system outside the territory of its incorporation. It is often said that the UK Limited, having no minimum capital requirement, has no creditor protection and does not recognise capital maintenance. Professor Rickford argued that there is no evidence showing that the so-called invasion of Limiteds would lead to a real risk for creditor protection. Continental Europe wrongfully believes that distribution rules for Limiteds would be less protective. The proposal of the paper. The paper proposed a harmonised European rule for private companies along the lines of the Rickford proposal: solvency certification certifying solvency over a foreseeable period and liquidity over a oneyear period. However, in some jurisdictions the Second Directive-type regime is regarded as acceptable, familiar and still superior, so there should be room for flexibility. On the European Private Company, it is not clear whether the European Private Company imposes a solvency requirement or a balance sheet requirement and whether it indeed imposes a requirement for a capital cushion or not. The conclusion reached was that, whatever the regime is for the European Private Company, if there was to be a harmonised regime for private companies, it should be the same as the regime for the European Private Company. So that when it is debated what the capital maintenance regime should be for the – 62 – European Private Company, we need to bear in mind that we are at least setting a possible precedent for harmonisation in Europe at a later date. The solvency test also requires adequate measurement rules with regard to the forward-looking financial information on the basis of which the directors have to issue the solvency certificate. As long as there are no generally accepted standards for such forward-looking test, the solvency test remains open-ended and provides a lesser degree of certainty to the directors as to which amount can be distributed. Furthermore, the question arose whether only the certificate must be published or whether also the underlying assumptions should be made public to allow creditors to assess the correctness of the test and the reasonability of the assumptions. It was suggested to impose the establishment of a financial plan, as is the case at incorporation of the company. The financial plan would not be made public, but would only be used in case of a liability claim. Insolvency. The relevance of insolvency law was also discussed, and it was agreed that a measure of insolvency harmonisation was desirable. The main proposals in the paper were that there should be harmonisation on the liability of shadow directors and harmonisation on the liability of directors for wrongful trading (trading in neglect of the interests of creditors in the close vicinity of insolvency). It was agreed that those were desirable outcomes and that principles of justice militate in favour of harmonised principles within Europe in those two fields. B. Response to paper by Jonathan Rickford I have considerable difficulty in responding to this paper. The reason is that I very largely agree with it and I am struggling to find the basis for a response which is interesting and provocative. I am not going to dwell on the rival merits of Second Directive-tied balance sheet tests and forward-looking cash flowbased solvency tests because that is an argument that is being debated at length and it can continue to be debated later today, but I think it is rather worn out. It is in my opinion obvious that if you want security-interested creditors, you...

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