no. 718 of 25/06/2010 with amendments of the Danish Bankruptcy Act and other different acts (Restructuring etc.) will commence not later than the 1st of March 2011. The amendment implements a new set of rules regulating restructuring of companies in financial distress. The purpose of the new restructuring rules is to reduce the number of bankruptcies, by helping economically struggling companies to survive. The new restructuring rules imply a significant change. In special matters, the Danish bankruptcy Court will grant the assigned restructurer (a lawyer) the power to take over the managing control of the company while restructuring is performed. In the event of the restructurer assumes the management of the company, the restructurer will also assume the risk of a managerial liability. The new restructuring rules hereby imply changes in the allocation of the Directors’ & Officers´ liability. Managerial liability can arise out of the restructuring it self although the liability is often caused by a direct or indirect an event prior to the restructuring. The changes in liability can result in changes to the incentives to perform restructuring. This could affect the total efficiency of the restructuring. Both the restructurer and the directors and officers will act risk neutral when they are covered by liability insurance. The restructurer is covered by a professional indemnity insurance, which covers liability resulting from the legal profession. This insurance does not cover managerial liability. The restructurer will require a cover of the managerial liability in order to perform a restructuring. The current standard wordings for directors’ and officers’ liability insurance available in the Danish insurance market does not explicitly specify cover of liability resulting from restructuring work. From an insurance perspective, the new restructuring rules imply a need to clarity the cover of liability resulting from the restructuring process. This thesis will examine the above-mentioned problem, by analysing the following questions: 1. Typical characteristics for companies in need of restructuring and how these can cause managerial liability. 2. What legal and economic effects are the new restructuring rules expected to have on the managerial liability, which can arise out of restructuring? 3. How will the board of directors’ and the officers’ incentives to perform a restructuring be affected by a directors and officers liability insurance? 4. What is the optimal insurance cover for the managerial liability arising out of restructuring? In short the scope of the thesis is as follows. Chapter 2 introduces the fundamental circumstances in the period before restructuring, and explains how those could result in managerial liability. Chapter 3 accounts for the area of law regulating restructuring, and analyses the new rules. In chapter 4, a game theoretic principal-agent game is set up. The game illustrates how different factors, such as insurance, owner interests and the point of no return, can impact the incentive to perform a restructuring. In addition, the game distinguishes between restructuring managed by the management verses restructuring managed by the restructurer. The game then calculates the total efficiency of the given strategies and suggests an efficient strategy. Chapter 5 contains an analysis of the change in the allocation of liability in connection to restructuring, as a result of the new rules. Chapter 6 presents a suggestion of how the managerial liability in connection with restructurings could be covered. Chapter 7 has the concluding answers to the thesis statement.
|Educations||MSc in Commercial Law, (Graduate Programme) Final Thesis|
|Number of pages||148|