1.1.2. Distribution

The second central concern of insolvency law is the question of how to distribute the

value realised in an equitable fashion. Again, the economic account and the openended

account of insolvency are diametricallv opposed on this point.

Strict adherence to the economic view ot insolvency law does not allow tor any

independent distributional policies specific to insolvency law. Since insolvency law's

objective is to maximise the return tor creditors, it follows that insolvency proceedings

are only to be used when they are collectively efficient. Consequently, insolvency law

should provide for a 'neutral forum' which mimics as closely as possible the relative

entitlements outside insolvency. Redistribution in favour ot particular groups would

produce 'perverse' incentives to use insolvency law tor individual gain, risking a suboptimal

yield.

By the same token, reorganisation of firms cannot be an independent objective ot

insolvency law. Reorganisation in the interest of employees, suppliers or the public

at large, gives parties rights that they did not have under non-insolvency law. This has

a destructive effect on insolvency law's ability to resolve the collective action dilemma.

Different treatment ofcreditors depending on the kind of enforcement proceedings

invites forum-shopping between the insolvency and non-insolvency forum. "

Thai is not to say that no redistributive effects at all are accepted. Although redistribution

is no independent concern, it may be justified to the extent that it contributes

to realising the core objective of insolvency law: maximisation of the aggregate value

for the benefit of the creditors." For instance, the pantos creditonnn is redistributive

in nature. It levels out positional advantages individual creditors may have under noninsolvency

law. However, if would be virtually impossible to mimic the pre-insolvency

entitlements, including the positional advantages, exactly in the insolvency forum.

The economic account of insolvency therefore accepts redistribution by virtue ot the

paiitas: it is cheaper and more efficient to level out the position of unsecured creditors.

"'

The open-ended account of insolvency law, on the other hand, accepts and acknowledges

distribution of value or loss as a necessary and legitimate concern of insolvency

law. There may be good reasons why pre-insolvency entitlements should be upheld

as much as possible in insolvency proceedings. At the same time, there may be other

interests that outweigh the benefits of upholding those entitlements. Various competing

interests may justify specific treatment of creditor categories in distribution,

such as the relative ability ofcreditors to spread the risk of insolvency or to demand vaiapici i wo. riiiitipies OT i.,ross-noraer insolvency aim

the Struggle over Jurisdiction

security, and/or the relative impact of insolvency on somebody's life.' Employees are

often accorded a priority in insolvency proceedings for these reasons. Special treatment

in insolvency could also be based on policies envisaging the avoidance of insolvency

proceedings, tor instance by encouraging the extension of credit in times of financial

difficulty.