8.4 Conclusion

If the law makes a clear distinction between different categories of legal acts prejudicing creditors, it is both possible and desirable to come to a partly objective rule for each of the different types of legal acts prejudicing creditors. Subjective criteria cannot, however, be dispensed with entirely.

English law demonstrates that a largely objective rule is possible for legal acts compromising the integrity of the estate. This in clear contrast to German law and Dutch law. A crucial step in identifying such an objective rule is the limitation of the sanction to the return to the estate of any benefit obtained by the counterparty out of the transaction. It was shown in the dissertation that such an objective rule is desirable. However, to be able to also avoid transactions effected long before the onset of insolvency, as well as legal acts where the prejudice caused to the creditors outweighs the benefit received by the counterparty, reliance on subjective criteria is indispensable.

In clear contrast to English law and Dutch law, German law demonstrates that the protection of the principle of equal sharing between creditors of the same rank (the paritas creditorum or pari passu distribution) can be protected by a largely objective rule. Such an objective rule would target, above all else, the so-called transfers in lieu of payment1 and the voluntary creation of security interests for existing debts. I have submitted that such an objective rule is also desirable. However, for the trustee to be able also to avoid preferences created in a period long before the onset of insolvency, reliance on subjective criteria is indispensable here as well. The same goes for the avoidance of due payments.

German law also demonstrates that, again in clear contrast to English law and Dutch law, prejudice caused to creditors by shareholder loans and shareholder guarantees can be curbed by an objective rule. The basic premise of this objective rule is, like the German rules, that if a shareholder provides a loan or a guarantee instead of providing additional capital, the risk associated with the loan or guarantee is, in economic terms, to a large extent equivalent to the risk associated with capital. This objective rule provides for the following, irrespective of the mental state of parties involved: (i) the subordination of shareholder loans, (ii) the unenforceability of security rights securing these loans, (iii) a separate regime applicable to payments made under these loans and (iv) a direct claim of the estate on the shareholder that acted as guarantor to one of the company's creditors when this creditor received payment in the period leading up to the declaration of insolvency. It was shown in the dissertation that this objective rule is also desirable. To uphold the principle of contractual finality, this objective rule will necessarily be limited in time. Repayments of shareholder loans, as well as payments of third party loans guaranteed by the shareholder further back in time, can only be made susceptible to transaction avoidance in insolvencies if certain subjective criteria are met.

To further illustrate the possibility of introducing a highly objective set of rules on transaction avoidance in insolvencies, model provisions have been drafted (see Appendix).