Should we rescue in insolvency?

This research paper will reassess the continued value of a policy of seeking to rescue financially distressed companies in formal insolvency proceedings. While the rescue ideology is well-embedded in our framework due to accepted economic benefits it may bring to stakeholders and the wider economy, recent global events and associated legislative reforms suggest that idealism ought now to give way to realism in terms of our approach to company insolvency legislation and its outcomes. We utilise conceptual, historical and empirical paradigms to reflect upon what part of the company is typically rescued in insolvency, the price for pursuing such rescue proceedings, and how such rescue proceedings could impact stakeholder rights in insolvency. In so doing, we engage with the distribution expectations of creditors in certain company insolvency proceedings and, remarkably, reopen the role of the converse proceedings to company rescue in insolvency – liquidation. On the whole, we propose that a more effective insolvency rescue regime requires a properly calibrated liquidation regime as its counterpart. Contrary to the normative approach in insolvency theory and practice, we suggest that rescue regimes and liquidation are not mutually exclusive. The latter comes with defined benefits to the rescue ideology, including preserving economic integrity (via an efficient market exit for non-performing entities, recycling of available assets – with or without business rescue – into the economy, precluding incidences of rescue proceedings as disguised liquidations and reducing costs), as well as facilitating creditor remedy through business and/asset sales and distributions.