The insolvency law has always held much interest in the people all around the world. The Cork report of 1982 greatly improved the insolvency law along with various other statutes that regard insolvency and bankruptcy. The Cork report originates from Kenneth Cork, who served at the cork committee that was responsible for making law recommendations regarding insolvency, bankruptcy, and liquidation of wealth. They formulated a comprehensive procedure that finally harmonized the law procedures for bankrupt businesses and increased their chances of survival (CAMAC 2010). The legal procedure recommended by Cork accentuated upon the similar system of insolvency courts to administer the laws that also gave the creditors a greater voice in the whole ordeal. The creditors could now choose the liquidator, penalties, a new director, and the constraint that directors could be legally adhered to. In addition, the law now protected the unsecured creditor who received nothing in the end. It produced quite a number of changes that were finally accepted legally in the insolvency law in 1986. The Cork report argued that it had several aims in enacting these new procedures. One of them was to recognize that the effect of insolvency are not limited to the private interest of the insolvent and his creditors but also other groups or individuals that may be affected by the whole procedure, as well as the outcome. The Cork report aim was to ensure that these public interests were recognized and protected. This paper will critique this aim in accordance to report by researchers and insolvency proceedings that have taken place under Cork report.
In the insolvency law, the public interest is regarded as the other members who hold an interest in the insolvency apart from the debtor. This involves anyone who holds a stake in the business whether financial or not. This also includes the interest of the community especially if the activities of the business affected the community or its members in any way. CAMAC (2010) states that the legal system should research the interests of the public and interpret them. This means that the courts should take account the interest of other interested parties before making a decision affecting the running of the business. Despite the concern in safeguarding the interest of the public, the Cork report seems to limit its interpretation of the insolvency system to the creditors and the debtors. Arguably, the public along with other interested parties do not seem to be part of priorities established before important decisions are made despite the fact that the Cork report argues that they are important to the insolvency procedure. Chan (285) states that the ‘public interest’ is not a statutory priority.
Along the years, insolvency and bankruptcy have been regarded as a matter of a private nature, therefore, calling for private laws and procedures. This includes the way that the rights of the creditors are aligned against debtors and the way that they will receive payment for those debts incurred. However, Chan (290) argues that the insolvency procedure is much wider than that. Due to the involvement of the public interest clause, the insolvency procedure should, therefore, be regarded as a public matter. Debatably, it could be considered a public issue since the interest of the public is included in the report. Furthermore, the insolvency procedure has been noted to involve substantial numbers of the members of the public for it to be only considered as a private issue. As a result, the insolvency procedure should be considered as a public matter due to these findings. In addition, if these changes were made, the issue of public interest could be given much more priority as it deserves (Yeowart 523). Doing these will ensure that the insolvency law is more than a legislation only protecting financial issues, but also prioritizing social issues and regarding the consequences of the insolvency procedure to the whole society.
(Steffek 513) debates that unless the public interests protection is prioritized, the law could still be following the rudimentary policies that governed bankruptcy before the 1600’s. This does not mean that all the improvements that have taken place for over five centuries have not been significant, but only that changes need to be made that keep in check the advancements that have taken place in the society. Notably, the interests of the public have been regarded with utmost priority in other areas of the law and social life. Therefore, Yeowart (518) argues that if the insolvency law does not regard the recommendations presented by respected stakeholders in the law, it will seem like the government and the department of justice has knowingly chosen to ignore the interest of the public. As a result, the public will hold the parties responsible for the changes in this statute with contempt because they choose to ignore the very essence that makes today’s society successful and forms its foundations of humanity.
Park (555) acknowledges that the issue of public interest could attract different perspectives in the Cork report that it still maintains its aim of protecting the public interest as stated in the report. However, CAMAC (2010) argues that instead of considering the public interest as an insignificant concern, the insolvency process would much like benefit if the public interest issue was regarded as a priority. For him, he argues that the community has as much interest in the success or failure of the business just as much as the creditors and the debtor involved. Proper treatment of the public through simple but significant activities would provide wider measures that the creditors would employ which would ensure the continuity of the business in question using the help of the community through different ways. First, the employees who are part of the community stand to benefit with the rescue of the business would accept to work for a lesser pay. This is just one of the ways that the community would help ensure a smooth insolvency procedure, since every community would be involved in the business in question in different ways.
In an effort to push the insolvency procedure beyond a predictable creditors’ bargain model, Frisby (2011) describes a new progressive vision that entails creating a forum in which all interest including those of the creditors, as well as other individuals or the community, would be recognized. This would help identify the company’s or businesses issues apart from those of a financial nature. Naturally, these identified issues would ensure that the company would correct these problems if given a chance to continue running business and therefore have a chance of realizing profits. While qualified personnel have not properly developed this procedure or approach of dealing with insolvency procedures, it would go a long way in providing all involved parties a medium of discourse. Not only does ITEC Group (2014) state that this is a matter of ultimate importance, but also an ethical one that requires immediate attention.
As many would argue, these purported changes only regard to the number of participants or interested parties, (Chan 283) argues that they concern a more beneficial situation. Researchers argue that making it a public issue would take into account the situation of the debtor, moral worthiness of the debt, as well as the intention of the creditor. They believe that this should be the case because lawmakers state that the matter of morality is a series of value and if so, more changes that promote morality and values should be encouraged in the insolvency law, as well as the cork report. The matter of making the public interest a matter of priority therein not only promotes morality, but also improves the quality of life for the community as well as many other people and therefore should be highly considered. If such action were taken to change the issue of public interest, a more heterogeneous approach would be used to distribute the financial obligations among a wide array of actors, therefore, protecting the investment in the public and community in the form of jobs as well as other areas (Lawyer 2013).
The simple mention of the public interest in the Cork report does not allow the people responsible for foreseeing the insolvency process as a community having a vital part to play in the identity of a company as opposed to being a corporate shell. Therefore, the legal system not only lays emphasis on the property rights, but also regards other circumstances with equal emphasis. This will help balance the economic as well as the social interest before taking a criminal proceeding against the company. Chan (285) states that a legitimate interest on diverse public interest will ensure a justifiable balance between creditor’s interests, interest of the business owners, as well as that of the public interest.
The vision also argues that insolvency in its very essence insensitive to those who are defined as the contract creditors who include managers, suppliers, employees, their dependants, and other members of the community (Yeowart 520). It fails to focus on the non-efficiency intentions, which are often recognized by legislation. The sale of assets as an effort to solve the insolvency issue demonstrates ignorance support corporations to stay in business, therefore, ignoring public interests. The fact that they do not direct efforts towards preserving jobs, which would also contribute to the economic factor of the bankruptcy issue further, demonstrates the low regard held for public interest, as well as the Jackson approach. The Jackson approach fails to recognize the court’s values, morals, political, social, and personal. The major weakness of the Jackson approach is because it focuses of creditor wealth maximization and lacks honesty in distributing financial obligation. Lawyer (2013) suggest that the insolvency law should focus beyond the legal rights of bearing the cost of business failure but focus on the bigger picture (Steffek 510). This in most cases would employ other alternatives that would enable the creditors, debtors and communities involved to benefit from the arrangement in the longer time span. One sided decisions like those which that happen in most cases not only affect the employees of the business in question, but also suppliers, tax authorities, and neighbouring traders whose business environment would be devalued causing serious financial crisis to the larger community.
Park (550) argues that stakeholders of the law have been putting too much effort towards balancing the needs and rights of the creditors with that of the debtor such that they might have sidelined the interest of the public. Overall, the communitarian theory that regards the public interest may be mentioned in the Cork report of 1982 but not defined extensively to involve the varied interest of the community. However, it is important to recognize the important work that the Cork committee did to improve the barbaric insolvency procedures that gave the creditors too much power when dealing with its creditors. Notably, the Cork report also gave the various options towards a more amiable transition in cases of bankruptcy, which has helped very many businesses in these worrying times of financial constraints. Nevertheless, the Cork report and the insolvency law need to provide more protection to the easily ignored group that make up the community. The U.K judiciary needs to draft and employ more efficient procedures that provide more protection to these groups. The interests of the community need to be part of the core and foundation that governs procedures and considerations employed by the courts. If they do so, they will ensure an insolvency law of high quality and also that, which matches the modern reforms that are taking place in these modern times.
Works cited
Chan, Tracy Evans. The public interest in judicial management: Singapore Journal of Legal Studies, (2013): 278-300. Retrieved from: http://law.nus.edu.sg/sjls/articles/SJLS-Dec-13-278.pdf
Frisby, Sandra. Insolvency law and insolvency practice: Principles and pragmatism Diverge? Current Legal Problems, 10(2011)1.
CAMAC. Submission to CAMAC on corporate social responsibility, 2010. Retrieved from: http://www.camac.gov.au/camac/camac.nsf/byHeadline/PDFSubmissions_2/$ file/CSymes_CSR.pdf
ITEC Group. Bankruptcy and a fresh start: Stigma on failure and legal consequences of bankruptcy: United Kingdom, 2014, 1-38.
Yeowart, Geoffrey. "Encouraging Company Rescue: What Changes Are Required To UK Insolvency Law?." Law & Financial Markets Review 3.6 (2009): 517-531.
Steffek, Felix. "Current Issues in European Financial and Insolvency Law – Perspectives from France and the UK.” European Business Organization Law Review 12.3 (2011): 509-513.
"Some You Win, Some You Lose -- The Hindsight Principle In UK Insolvency Law." Lawyer (Online Edition) (2013): 15.
Park, James J. "Securities Class Actions and Bankrupt Companies." Michigan Law Review 111.4 (2013): 547-590.
