Market dynamics in corporate governance : lessons from recent developments in English law

• Main Author: Panijpan, Kris
• Published: London School of Economics and Political Science (University of London) 2006
• Subjects: 346
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.645621

It is one of the key insights of economics that markets always adjust. Any change in law will change the way the game is played; the market has no obligation to accomplish the aim of the law, it will attempt to maximize interests within the constraints of that law. This thesis will focus on three areas of corporate law: 1) minority rights, 2) secured credit and 3) insolvency. Minority Rights. This chapter argues that a) there are valid reasons for concentrated ownership and b) a much better indication of the control afforded by corporate law is the control premium. Control confers a premium under any system; in a dispersed shareholding, it falls to the managers, in a concentrated shareholding, to the majority shareholders. The legal method for controlling majority shareholders is through derivative suits, or in the UK, unfair prejudice suits. Secured Credit. The academic literature in the field has cast doubts on the efficacy and desirability of secured credit (particularly the seminal article by Bebchuk and Fried). This chapter argues that most arguments against secured credit are flawed, excepting perhaps the case for the priority of tort creditors. Insolvency. This chapter analyses the changes to UK insolvency law introduced by the Enterprise Act 2002. This chapter argues that the changes do little to change the UK into a "rescue culture" although it can perhaps be argued that the changes do weaken the liquidation bias. It concludes that the current UK insolvency regime appears to shift the balance of power in the direction of unsecured creditors.