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Legal capital: an outdated concept

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Author Info
John Armour
Abstract

This paper reviews the case for and against mandatory legal capital rules. It is argued that legal capital is no longer an appropriate means of safeguarding creditors' interests. This is most clearly the case as regards mandatory rules. Moreover, it is suggested that even an 'opt in' (or default) legal capital regime is unlikely to be a useful mechanism. However, the advent of regulatory arbitrage in European corporate law will provide a way of gathering information regarding investors' preferences in relation to such rules. Those creditor protection rules that do not further the interests of adjusting creditors will become subject to competitive pressures. Legislatures will be faced with the task of designing mandatory rules to deal with the issues raised by Ônon-adjustingÕ creditors in a proportionate and effective manner, consistent with the Gebhard formula.

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Paper provided by ESRC Centre for Business Research in its series ESRC Centre for Business Research - Working Papers with number wp320.

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Date of creation: Mar 2006
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Handle: RePEc:cbr:cbrwps:wp320

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Related research
Keywords: Corporate Law; Creditor Protection; Legal Capital; Regulatory Competition;

Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
K22 - Law and Economics - - Regulation and Business Law - - - Corporation and Securities Law

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