Comparative Analysis based on the Swiss and English Legal Systems

Transcription

1 ARBEITEN AUS DEM 1URISTISCHEN SEMINAR DER UNIVERSITAT FREIBURG SCHWEIZ Herausgegeben von Peter Gauch 263 TETIANA BERSHEDA VUCUROVIG Comparative Analysis based on the Swiss and English Legal Systems Schulthess 2007

2 ABBREVIATIONS,. XXIII BIBLIOGRAPHY ; XXIX A. Swiss Law...:. :,.: ; ;...XXIX B. English and Other Legal Systems LILT INTRODUCTION A. 'Relevance of the Topic 1 B. Structure of the Thesis 3 PART ONE THE LEGISLATIVE FRAMEWORK AND THE NEED FOR REGULATION SECTION 1 THE LEGISLATIVE FRAMEWORK CHAPTER! CURRENT LAW -.' 7 I. Swiss LAW :,...,.:...! II. ENGLISH LAW III. OTHER LEGAL SYSTEMS USED FOR COMPARISON 12 CHAPTER 2 REFORM AGENDA I. IN SWITZERLAND 16 A. Historical Background.. 17 B. Impact on Creditor Protection in the vicinity of Insolvency 18 a. First Draft, 1998.' : '. 18 b. Message of the Swiss Federal Council, c. Revision of Company Law Proposed by Federal Council, XIII

3 Detailed Table, of Contents II. AT THE EUROPEAN LEVEI,... : 24'. SECTION 2 THE NEED TO REGULATE THE LIABILITY OF COMPANY DIRECTORS CHAPTER 1 THE ISSUE.' CHAPTER 2 THE HYPOTHETICAL BARGAINING MODEL I; IN GENERAL ', : 29 II. APPLICATION BY LEGAL AUTHORS 30 CHAPTER 3 OTHER REASONS FOR THE NEED FOR DIRECTOR LIABILITY.,..;.:," ;.:, I. SHIFT'OF INTERESTS AT STAKE 33 II. AGENCY COSTS 34 III. FAILURE OF MARKET FORCES., 35 A. Market for Managerial Labour :.36 B. Covenants 37 C. Security Interests 38 D., Diversification and Risk Insurance...39 CHAPTER 4 PERSONAL VIEW 40 PART Two COMPARISON OF THE SWISS SECTION 725 CO AND THE BRITISH SECTION 214IA SECTION 1 TRIGGERING CRITERIA CHAPTER 1 Swiss LAW.' I. Loss OF CAPITAL.,. 49 A. Definition :.., 49 a. Reserves Required by Law 50 XIV

4 b. Re-evaluation Reserves?.: c. Relevant Balance Sheet 53 B. Consequences 54 II. OVERINDEBTEDNESS./.,..., A..Definition...;', 58 a. In General '. ;58 b. 'Substantiated Concern of Overindebtedness'...,. 59 c. ' On-going Concern and Break-up Values. 60 B. Consequences 63 a. Auditors* Control b. Duty to Inform the Judge 64 c. Relief from the Duty in the Presence of Concrete Prospects of Rescue 68 C. Special Case of Subordination of Company's Creditors 74 a. In General '. 74 b. Characteristics :: : 76 c. Conditions', 77 (i) In General, 78 (ii) Amount...< : 78 (iii) Irrevocable Character...::.....; : 8(J (iv) Subordination Approved by the Board of Directors ol (v) Solvencyofthe.Subordinated Creditor(s) : 81 d. Consequences for Subordinated Creditors 86 e. Conflicts of Interests f. Rules Governing Subordination in Private International Law... : 89 CHAPTER 2 ENGLISH LAW...;'. :..: I.'No REASONABLE PROSPECT'TEST 92 A. The Relevant Time! 92 a. Traditional Case.Law Approach,..._. 93 b. Recent Leniency Trend in Case Law 94 c.. Governmental Approach..: '. :,...,: 95 B. No Reference to Balance-SheetData a. In General 96 b. Irrelevance of Legal Capital.' 96 C. Consequences 100 II. KNOWLEDGE ATTRIBUTABLE TO DIRECTORS 101 A. Minimum Standards '. 102 B. Seeking Professional Advice.' 104 XV

5 CHAPTER 3 COMPARISON OF SWISS AND ENGLISH LAWS 105 I. DIFFERENT RULE MODELS : 105 II. DETERMINANT TEST.'. 108 A. Similarities of Regulation of Loss of Capital 109 B. Criticism of Balance-Sheet Test 110 C. Advantages of English Law Ill a. Flexibility of Section 214 IA : 112 b. Learning and Network Benefits of Section 214 IA 112 D. Dynamic Approach of English Law v. Snapshot Method Adopted by Swiss Law III. PERSONAL VIEW 116 SECTION 2 CHARACTERISTIC FEATURES OF LIABILITY CHAPTER 1 Swiss LAW. 120 I. FIRST CONDITION: Loss 122 A. In General '. 123 B. Distinction between Direct and Indirect Damage 126 a. Traditional Case Law 128 b. Recent Case Law 129 c. In Case of Balance-Sheet Insolvency 135 'C. Unlawful Preferences? '...,. 142 D. Personal View : '. 144 II. SECOND CONDITION: BREACH OF DIRECTOR'S DUTIES 146 A. Traditional Approach 147 B. Director's Unlawful Behaviour under Section 754 CO, 149 C. Subjective Approach '. 151' D. Personal View ; 152 III. THIRD CONDITION: CAUSAL LINK A. Link of Natural Causation : : 153 B. Link of Adequate Causation 157 IV. FOURTH CONDITION: FAULT 159 V. JOINT AND SEVERAL LIABILITY 162 XVI

6 Detailed Table of Con ten ts CHAPTER 2 ENGLISH LAW I. NET DEFICIENCY TEST...: : 165 A. Definition ;.-...". 166 B. Unlawful Preferences? 167 C. Persona! View 169 II. BENEFICIARIES OF DIRECTOR LIABILITY....' 170 A. Secured and Unsecured Creditors '. 170 B. Absence of Priority in Time :... : 171 III. DEFENCES TO LIABILITY 173 IV. JOINT AND SEVERAL LIABILITY,.;..=.176 CHAPTER 3 COMPARISON OF SWISS AND ENGLISH LAWS 177 I. CONCEPT OF Loss,...;.., 177 A. Similarities B. Discrepancies.". 179 II. OTHER CONDITIONS OF LIABILITY 180 A. Similarities -. -.,..., 181 B. Discrepancies...: a. Breach of Director's Duties 182 b. Causal Link : III. JOINT AND SEVERAL LIABILITY 183 IV. PERSONAL VIEW 185 SECTION 3 FUNDING OF LITIGATION CHAPTER 1 Swiss LAW, 187 I.' IN GENERAL,...,. 187 II. FINANCING OF CLAIMS BY THIRD PARTIES 194 III. TREATMENT OF LIQUIDATOR'S COSTS IN RELATION TO SECURED' CREDITORS CHAPTER 2 ENGLISH LAW.- ; I. IN GENERAL 197 XVII

7 II. FINANCING OF CLAIMS BY THIRD PARTIES 204 III. TREATMENT OF LIQUIDATOR'S COSTS IN RELATION TO SECURED CREDITORS 207 CHAPTER 3 COMPARISON OF SWISS AND ENGLISH LAWS 209 SECTION 4 SCOPE OF THE CONCEPT OF A COMPANY DIRECTOR CHAPTER 1 Swiss LAW : 215 I. DEJURE DIRECTORS 217 II. DEFAcro DIRECTORS, 220 A. Definition :...' 220 B. Personal View '. 225 III. 'APPARENT' (DURCH KUNDCA.BE) ORGANS 227 IV. SHADOW DIRECTORS? 228 CRAPTER-2 ENGLISH LAW 231 I. DEJURE DIRECTORS 231 II. DE FACTO DIRECTORS '. 233 III. SHADOW DIRECTORS 234 A. In General 234 B. Parent Companies 236 CHAPTER 3 COMPARISON OF SWISS AND ENGLISH LAWS 238 PART THREE DIRECTOR'S DUTIES OF CARE AND LOYALTY IN THE VICINITY OF INSOLVENCY SECTION 1 DUTY OF CARE CHAPTER 1 Swiss LAW. 245 I. CURRENT STATE OF LAW 245 XVIII

8 II. BUSINESS JUDGMENT RULE IN- SWITZERLAND? A. Business Judgment Rule in the United States : 249 a. Theoretical Concept 250 b. Decisionin Smith v. Van Gorkom c. Legislative Response...: -.. :. 255 B. The Implications of the Business Judgment Rule in Switzerland 257 CHAPTER2 ENGLISH LAW 259 I. OBJECTIVE v. SUBJECTIVE STANDARD.,...,...: 260 II. TRADITIONAL LENIENT APPROACH 261 III. EVOLUTION OF CASE LAW, IV. SECTION 174 COMPANIES ACT CHAPTER 3 COMPARISON OF SWISS AND ENGLISHLAWS " SECTION 2 DUTY OF LOYALTY CHAPTER 1 Swiss LAW 269 I. IN GENERAL,,.-., II. BENEFICIARIES ;: CHAPTER 2- ENGLISH LAW..: I. IN GENERAL II. MOMENT OF SHIFT IN THE NATURE OF THE DUTY 278 CHAPTER 3- COMPARISON OF SWISS AND ENGLISH LAWS PART FOUR SPECIAL DISQUALIFICATION REGIME IN ENGLISH LAW CHAPTER! DISQUALIFICATION FORUNFITNESS '. 286 I. IN GENERAL : : : 286 II. DEFINING'UNFITNESS'. 289 XIX

9 III. EXAMPLES OF DISQUALIFICATION FOR UNFITNESS 291 IV. SCOPE OF DISQUALIFICATION.'. 293 V. OUT-OF-COURT AGREEMENT '., 294 VI. LIABILITY UNDER DISQUALIFICATION ORDER 295 VII. DISQUALIFICATION PERIOD 296 CHAPTER 2 COMPLEMENTARY CHARACTER OF WRONGFUL TRADING AND DISQUALIFICATION 297 CHAPTER 3 PERSONAL VIEW..299 PART FIVE REFORM PROPOSALS FOR SWISS LAW CHAPTER 1 IN GENERAL 304 I. WHY REFORM SWISS LAW?.' 304 II. ALTERNATIVE ECONOMIC MODELS 306 CHAPTER 2 TRIGGERING CRITERIA GENERAL CRITICISM OF THE OVERINDEBTEDNESS TEST ; 312 II. RECOMMENDATIONS OF THE UNCITRAL LEGISLATIVE GUIDE ON INSOLVENCY 314 III. Swiss EXPERTS' REPORT '1ST DAS SCHWEIZERISCHE SANIERUNGSRECHT ' REVISIONSBEDURFTIG? 316 IV. CRITIQUE OF THE CURRENT STATE OF SWISS LAW BY LEGAL AUTHORS 318 V. PROPOSALS FOR MORE APPROPRIATE TRIGGERING CRITERIA 321 CHAPTER 3 INFORMAL OUT-OF-COURT REORGANISATION PROCEDURES 324 I. ABSENCE OF PUBLICITY 325 II.' EXAMPLES. :.327. A. Pre-Packaged Reorganisation Plan. 327 B. So-Called "London Approach' XX

10 CHAPTER 4 OTHER PROPOSALS :..331 I. DISQUALIFICATION REGIME,.331 II. ' MANDATORY DIRECTORS AND OFFICERS (D&O) LIABILITY INSURANCE 333 III. NEED FOR A SPECIAL RULE FOR START-UP COMPANIES 337 CHAPTER 5 PROPOSAL FOR A NEW PROVISION 339 CONCLUSION,...: TABLE OF CASES ;,...». 351 I. Switzerland 351 II. United Kingdom, III. Other Legal Systems 360 INDEX.',. 363 XXI