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The recent bailout of Credit Suisse is noteworthy for many reasons. One of them is that, while AT1 bondholders were wiped out, shareholders were not. This violates the ‘absolute priority rule’ which is central to corporate reorganisation and bank resolution regimes. In this article, we analyse the motives and mechanics of the write-down and argue that, given the bond terms, the prospect for a legal challenge by the bondholders is slim. At the same time, we question the merits of the write-down. Bondholders should fare no worse than common equity, regardless of whether a financial institution is put in an insolvency proceeding or bailed out, and the applicable bond terms should reflect this. We also raise the issue of a more principled approach to bailouts more generally. |
In this article, I discuss the possibilities and limitations of restructuring laws against the background of geopolitical shocks such as the Covid-19 pandemic and the current energy crisis. I make two claims, one narrow and focused on German bankruptcy law, and one broad with a cross-jurisdictional reach. My narrow claim relates to ‘StaRUG’, the new German restructuring regime. I argue that this law is a superfluous and flawed instrument. It should be repealed. My second claim is much broader. I argue that bankruptcy laws, including restructuring laws, are generally ill-suited to deal with the economic consequences of geopolitical or macroeconomic shocks as a ‘first line of defence’. Bankruptcy laws are not designed to provide the structural assistance at scale which the businesses ... |
