What is effective insolvency law? Effective insolvency laws play an important role in the health of an economy, and particularly upon the framework of investment decisions. Understanding how this works is particularly relevant during a period of financial crisis. International Monetary Fund and World Bank guidelines for “Orderly and Effective” insolvency laws were intended to encourage law reforms that would stimulate investment by improving returns to investors in the event of insolvency. The guidelines were strongly influenced by an efficiency approach to insolvency. This approach posits that absolute priority for secured creditors is allocatively efficient and therefore the best means to achieve maximum social welfare. The guidelines also drew heavily on the principles and practices of ‘creditor friendly’ English law, seen by some as a paragon of efficient insolvency. But how accurate is this appraisal of English law or the impact of efficient insolvency? The Enterprise Act 2002 sought to develop a rescue culture by improving inclusivity and increasing distribution of both control and returns amongst stakeholders. Instead of reducing overall returns, as an efficiency model would suggest, research into insolvency outcomes suggests that the revised administration procedure may provide better returns to all groups of creditors, including secured creditors. This thesis uses empirical data to explore the limitations of an efficiency approach to insolvency, and explain why in a developed legal regime inclusivity improves returns by increasing the likelihood of effective rescue. The changes in English law are reflective of an increased private sector investment in informal workouts and a growing emphasis on reputational and relationship concerns. An element of redistribution and inclusivity will provide better global returns to investors than a slavish approach to secured creditor priority.

It is now more than thirty years since the reform of corporate insolvency law in the United Kingdom (UK) focused on the promotion of a 'rescue culture,' a trend which started with the work of the Cork Committee chaired by Sir Kenneth Cork. The Cork Committee in its Report recommended encouraging the continuation and disposal of a corporate debtors' business as a going concern wherever possible, and the Government responded to Cork's recommendation by introducing Administration and Company Voluntary Arrangement ('CVA') in the Insolvency Act 1986 ('IA 1986'). The corporate insolvency laws in the UK have been subject to considerable scrutiny and reform, culminating in the implementation of two distinct but related nieces of legislation bearing upon corporate rescue; the Insolvency Act 2000 (IA 2000) and the Enterprise Act 2002 (EA).