The meeting, which will be held on 11-12 November 2021, encompasses several events, including the Research Forum, which features cutting-edge international law scholarship by more than 70 authors and is open to the public. Registration details are available here.
Marija’s presentation is titled ‘Redesigning Slavery Through Law: A Play in Four Acts’ and will be hosted by the Reimagining International Law panel, chaired by Professor Noah B. Novogrodsky of the University of Wyoming College of Law.
Marija’s paper investigates, in particular, the relationship between the law and slavery including ‘modern slavery’. It argues that just as states in the Global North have maintained ‘traditional’ slavery using law as a primary tool, so have they substituted the old with ‘modern slavery’ to accommodate and fulfil the needs of the present-day global economic order and political reality. This contradicts their projected image of the champions of the abolitionist movement and the recent global action against ‘modern slavery’.
This work is situated within Marija’s broader research on modern slavery and human trafficking, which explores how various aspects of law both contribute to and work to suppress these practices. It builds on her doctoral work, which is further developed in the book on State Responsibility for ‘Modern Slavery’ in Human Rights Law: A Right Not to be Trafficked forthcoming with the Oxford University Press in 2022.
The interrelation of ecology and conflict has been the object of extensive study by political scientists and economists. From the contribution of natural resource ‘scarcity’ to violent unrest and possibly armed conflict; to resource ‘abundance’ as an incentive for initiating and prolonging armed struggles; to dysfunctional resource management and environmental degradation as an obstacle to peacebuilding, this literature has exerted a huge influence upon academic discussions and legal/policy developments.
While international law is often invoked as the solution to the socio-environmental challenges faced by conflict-affected countries, its relationship with the ecology of war and peace remains undertheorized. Drawing upon environmental justice perspectives and other theoretical traditions, the book unpacks and problematizes some of the assumptions that underlie the legal field.
Through an analysis of the practice of international courts, the United Nations Security Council, and truth commissions, the book shows how international law silences and even normalizes forms of structural and slow environmental violence (notably, uneven access and distribution of natural resources; less visible forms of violence associated with the environmental aftermath of wars).
This, in turn, jeopardizes the prospects of creating more peaceful societies, while perpetuating deeply rooted inequalities. Ultimately, the book urges us to imagine entirely different legal notions of justice, peace, and security in times of ecological disruption.
By drawing upon extra-legal fields of inquiry (e.g., the literature on environmental security, the political economy of civil wars, the resource curse, and environmental peacebuilding), the book strives to refine extant understandings of how international law conceptualizes and regulates the ‘environment’ before, during, and after armed conflict.
By engaging with some of the international legal order’s most pressing concerns – rising intra-state violence, environmental degradation, resource depletion, and their interaction – the book opens intellectual spaces for rethinking current approaches to the ecological challenges of our hyperconnected world and their adverse impact on the most marginalized peoples. As such, it offers a critical companion work to related titles and, at the same time, pushes the research envelope further and in new directions.
E Cusato, The Ecology of War and Peace: Marginalising Slow and Structural Violence in International Law (CUP 2021)
The book will be of interest to academics and students across different disciplines, primarily international law, but also peace and conflict studies, political theory, and international relations. It will also prove useful as a reference for policymakers and practitioners working at the intersection of environmental issues, human rights, and peace and security within international organisations/tribunals, governmental departments, think thanks, and NGOs.
Dr. Eliana Cusato is currently on academic leave from the Essex Law School.
The collection was edited by Ilias Bantekas (Hamad Bin Khalifa University, Qatar) and Michael Ashley Stein (Harvard Law School, Massachusetts), and was published in September 2021 by Cambridge University Press.
How can businesses operate profitably and sustainably while ensuring that they are applying human rights? I. Bantekas and M. Stein (eds), The Cambridge Companion to Business and Human Rights Law (CUP 2021)
Marija’s chapter explains the role and responsibility of the business sector in securing the rights to work and just and favourable conditions of work by clarifying the origins, legal nature, scope, and enforcement of obligations placed upon corporate actors.
It explores the differences between the role of businesses and that of states in safeguarding these rights and seeks to establish whether any obligations placed upon business actors are owed to individuals employed by their subsidiaries and suppliers outside of their country of domicile.
The chapter reflects on the three modalities of framing obligations of the business sector to secure the rights to work and just and favourable conditions of work in today’s globalised economy. It also considers whether states have – or should have – an international obligation to enact and enforce legislation that enables individuals from other jurisdictions to seek redress for the violations of the two rights by their corporate nationals.
Marija’s contribution and the further twenty-four chapters of the Companion are intended to serve as both a specialist guide to businesses, states, and consumer organisations and civil society at large in their pursuit of business and human rights related actions and policies, as well as a comprehensive textbook for business and human rights modules.
England is no stranger to strategic or – at times – abusive use of insolvency provisions.
In the early 2000s, a mechanism frequently used by debtors to retain the control of distressed companies at the expense of their creditors was pre-packaged administration. Following some empirical studies and a public consultation, the Coalition Government introduced some changes to the insolvency system to address the concerns from the industry and practitioners. Yet, it seems that Parliament will have to turn again its attention to similar issues in the not-so-distant future.
In fact, the recent case of Virgin Atlantic, which filed for Chapter 15 protection in the USA to shield itself from the claims of its creditors, as well as other trends in the rescue practice, bring back to the fore the ongoing issue of strategic or abusive use of insolvency provisions.
This blog post briefly discusses whether, and the extent to which, we should be worried by these growing trends in the rescue “industry”.
Pre-Packaged Administrations
Pre-packaged administrations are a hybrid form of corporate rescue. These procedures combine the benefits of informal workouts with the properties of formal procedures.
In a pre-packaged administration, the sale of the distressed business is negotiated before the debtor files for insolvency. Usually, the buyer is a person connected to the debtor’s existing shareholders, sometimes even the existing shareholders or directors. The sale is effected shortly after the debtor files for insolvency, leaving the creditors with no remedies and abysmally low returns for the money they lent to the debtor.
In a paper published at the beginning of this year,[1] Dr. Vaccari identified the characteristics that make a pre-packaged administration abusive. This happens when the sale is determined by a close group of players, who collusively act solely to sidestep or subvert insolvency rules and extract value from the company. To be abusive, such actions should cause undue financial harm to the creditors and fail the “next best alternative” valuation standard.
Conscious of the risks associated with pre-packaged administrations, the Coalition Government launched a study into these proceedings which resulted in the Graham Review (2014) as well as in minor regulatory changes. Some of the industry-led measures introduced following the Graham Report are currently under review. The recently enacted Corporate Insolvency and Governance Act 2020 introduced an extension[2] to end of June 2021 to the power to legislate on sales to connected persons, which was granted by the Small Business, Enterprise and Employment Act 2015 (‘SBEEA 2015’) but expired in May 2020.
It seems accurate to claim that the risks of abusive use of pre-packaged administrations, especially in sales to connected parties, have been significantly curtailed since the regulatory and industry-led changes introduced in 2015. Nevertheless, shareholders and directors have not embraced overnight a new, more inclusive and stakeholder-oriented approach to the management of corporate crises. As a result, the rescue industry has developed new mechanisms to sidestep and at times subvert insolvency rules, for the purpose of promoting the interests of out-of-money players (such as shareholders and directors) at the expense of the residual claimants in insolvency (i.e. secured and unsecured creditors).
Recent Trends
Some recent, high profile cases show the emergence of new trends in corporate rescue practice, designed to sidestep or subvert insolvency rules. These trends are light-touch administrations (LTAs), temporary stays on creditors’ claims – sometimes effected internationally – and reverse mergers.
In LTAs, administrators rely on paragraph 64(1), Schedule B1 of the Insolvency Act 1986 to allow the existing directors of an insolvent company to continue exercising certain board powers during an administration procedure. This practice, however, undermines one of the pillars of the English corporate insolvency framework, i.e. that those responsible for the debtor’s failure are not allowed to run the company in insolvency. The idea behind this choice is that independent insolvency practitioners are better placed than existing directors to protect and promote the interests of creditors as a whole, without necessarily affecting the chances of the debtor to be rescued or sold on a going concern basis.
In LTAs, the existing directors are not free to do whatever they want. Directors usually sign with the administrator a consent protocol, prepared by the Insolvency Lawyers Association and the City of London Law Society. Such a protocol introduces restrictions to the use of directors’ powers in order to safeguard the interests of other creditors and stakeholders. However, in a recent article yet to be published,[3] Dr. Vaccari conducted a doctrinal analysis of the guidance provided by the courts in running LTAs and concluded that the interests of unsecured creditors are unduly affected by these procedures.
The recent events in Debenhams’ restructuring support the early findings in Dr. Vaccari’s article. Debenhams became the first high street business in the UK to enter a LTA process in April 2020, after sales plummeted under the nationwide lockdown. To date, Debenhams’ lenders and owners are “highly supportive” of the LTA process and are funding the administration fees. The process is likely to result in a sale of the profitable assets of the business by the end of September 2020.
So, all good? Not really. In the meanwhile, Debenhams is not paying its landlords and suppliers, with the exception of essential ones. Many workers are paid by the Government (and the taxpayers) through the Job Retention Scheme. Also, this LTA represented the third time the retailer underwent some form of insolvency procedure in less than a year. Earlier attempts included a pre-packaged administration after rejecting financial support from Sports Direct’s owner Mike Ashley and a company voluntary arrangement.
In other words, Debenhams is a “zombie” business, something out of The Walking Dead. It has already been killed several times by the market; it is a failed business, yet it is still operating for the benefit of existing shareholders and directors.
Debenhams is not the only recent case of strategic use of insolvency provisions. After the rejection of a bailout request by the UK Government, Virgin Atlantic worked on a £1.2 bln rescue deal with some of its shareholders and private investors to stave off collapse. It is likely that the negotiations will go ahead – despite the shaky financial situation of the company – thanks to a moratorium or stay on executory actions by the creditors. This moratorium is one of the innovations introduced by the Corporate Insolvency and Governance Act 2020[4] and it has been used as part of a restructuring plan procedure under the newly introduced part 26A of the Companies Act 2006.
However, Virgin Atlantic has assets all over the world. In order to protect them from executory actions, the company sought recognition of the English stay under Chapter 15 of the U.S. Bankruptcy Code. Chapter 15 is a part of the U.S. Bankruptcy Code designed to facilitate cooperation between U.S. and foreign courts. It was added to the code in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act, and it allows foreign individuals or companies to file for bankruptcy protection in the U.S. in cases where assets in more than one country are involved. When the order is granted, it is usually recognised all over the world, thus protecting the debtor’s assets against creditors’ predatory actions.
Often, Chapter 15 is filed in conjunction with a primary proceeding brought in another country, typically the debtor’s home country. However, no such proceeding has been opened with reference to Virgin Atlantic. The restructuring plan mentioned above is a company, rather than an insolvency procedure, which means that creditors are less protected than in insolvency. The effect of the Chapter 15 filing is, therefore, to give world-wide recognition to a private agreement negotiated by the company’s directors and key creditors with the support of existing shareholders. A vote on the plan from the wide range of creditors who have legitimate claims against the company will not take place until late August, with a confirmation hearing scheduled for the beginning of September. As a result, the outcome of the Virgin Atlantic case is not dissimilar from Debenhams’ one: the claims of out-of-money shareholders and directors are prioritised against the legitimate interests, rights and claims of other, less sophisticated creditors.
Finally, a practice that it is emerging with renewed preponderance is the use of “reverse mergers” or “reverse takeovers”. A reverse merger is a merger in which a private company becomes public by acquiring and merging with another public company. If the public company files for insolvency first, sells all its assets but keeps its legal standing, the private buyer can go public by merging with the public, insolvent company. In this way, the private buyer avoids the complicated and expensive compliance process of becoming a public company by merging with the insolvent, public debtor. Additionally, all licences, permits, quotas, clearances, registration, concessions etc. conferred on the insolvent debtor will continue with the buyer despite the changing of hands of the controlling interest.
This may, in theory, seem a good idea to maximise the value of the insolvent debtor. Ultimately, the debtor’s listing in the stock exchange (and its public nature) is an asset. What’s wrong in selling it?
First and foremost, the fact is that compliance regulations are sidestepped. Unlike a traditional Initial Public Offering (IPO), reverse merger disclosure documents are generally not reviewed by securities commissions; only by the exchange on which the two companies propose to list. Although this reduces the regulatory burden on issuers, it also dispenses with an important element of investor protection.
These regulations are not simply procedures designed to make life difficult to companies that want to go public. These are procedures designed to protect investors and, ultimately, creditors.
Additionally, another reason to opt for a merger rather than a purchase is if the target company has significant net operating losses that the buyer might be able to use to reduce its tax liabilities. Finally, reverse mergers do not necessarily require concurrent or any kind of financing, as they can take place with a share exchange.
In the U.S. the process has been used by several companies, particularly by start-ups in the automotive sector. These include Nikola Motors, Lordstown, Fisker Automotive, Velodyne Lidar and bus-maker Proterra. At the time of writing, Nikola Motors has a stock exchange value exceeding US$2 bln, while Lordstown has a stock market value of US$1.6 bln. If you haven’t heard these names before, you’re not the only one. Both Nikola and Lordstown have yet to produce their first (electric) vehicle!
It is not surprising that all these companies relied on reverse mergers to go public. Reverse mergers involve less regulatory scrutiny, are cheaper in terms of professional and other expenses, faster than a traditional IPO and able to avoid or minimize market and execution risk on their going-public transactions. Which, ultimately, brings us to the question: are reverse mergers of an insolvent public company a trick or a threat for the debtor’s stakeholders?!?
What’s Next
The Government should respond promptly to these new trends emerging from practice. The commitment to promoting a rescue culture and – more generally – the rescue of distressed yet viable businesses cannot come at the expense of “everything else”. Cases like Debenhams, Virgin Atlantic and the U.S. listing of automotive start-ups suggest that the market is unable at the moment to self-regulate.
The Covid-19 pandemic accelerated a trend towards the strategic or abusive use of insolvency provisions. If unchecked, this trend can only result in more insolvencies and higher taxes.
If suppliers are not paid, the above-mentioned insolvencies will create a domino effect in the industry and they will result in further filings. As for taxes, Dr. Vaccari mentioned in a previous blog post that the re-introduction of the Crown preference is expected to increase the returns to the HMRC. However, higher numbers of insolvency procedures and a downturn of the economy are likely to affect the capacity of companies to generate revenue and – as a result – to pay taxes. If companies pay less taxes and the Government is forced to spend more in subsidies to companies and employees, this is likely to result in cuts to public services and higher rates of taxes for people and companies alike.
The publications mentioned in this article are available on Westlaw, Researchgate.net and Academia.edu. Dr. Vaccari regularly discusses insolvency matters on Twitter and LinkedIn.
[1] E Vaccari, ‘English pre-packaged Corporate Rescue Procedures: Is There a Case for Propping Industry Self-Regulation and Industry-Led Measures such as the Pre-Pack Pool?’ (2020) 31(3) I.C.C.L.R. 170, 184-185.
[3] E Vaccari, ‘Corporate Insolvency Reforms in England: Rescuing a “Broken Bench”? A Critical Analysis of Light Touch Administrations and New Restructuring Plans’ (2020) I.C.C.L.R. (forthcoming).
Dr Eliana Cusato, Lecturer in Law, University of Essex, has published a paper titled ‘International law, the paradox of plenty and the making of resource-driven conflict’.
This article intervenes in legal debates on the relationship between natural resource extraction and armed conflict. Since the 1990s there has been a proliferation of international/global initiatives to end wars fuelled through the exploitation of ‘conflict resources’ and improve resource management in fragile, conflict and post-conflict countries. Examples of such developments include the use of commodity sanctions by the UN Security Council to restrict trade in ‘conflict resources’ and multi-stakeholder initiatives, such as the Extractive Industry Transparency Initiative. International courts have also dealt with resource exploitation in conflict situations (e.g. the International Court of Justice in the Armed Activities Case) expanding the scope of international provisions, such as prohibition of pillage.
While the consensus in the field is that these international interventions have improved the governance of natural resources in war-torn and post-conflict countries (although enforcement remains a key concern), the capacity of the law to engage with questions of resource access and distribution, which may be at the root of these conflicts, is rarely discussed. Yet, as the peacebuilding literature tells us, a failure to address socio-economic grievances may weaken the chances of positive peace and reproduce inequalities important to conflict causation. In other words, although the objective of normative/institutional interventions is to reinforce international peace and security, they seem to ignore a crucial part of the picture. This is the puzzle at the core of the article.
Until now international legal scholarship has focused on ways to improve the protection of natural resources in conflict and post-conflict scenarios to reinforce the chances of creating more stable and sustainable societies. Limited, if any, attention has been paid to the political, economic, and theoretical assumptions underpinning international rules and how these assumptions shape current responses to violence/conflict in the Global South. The aim of this article is to fill this gap, by exploring the influence of the resource curse theory (or paradox of plenty) upon legal and institutional developments in this field.
The overall argument is that the uncritical acceptance of the paradox plenty (and its hidden propositions) by scholars, institutions, and civil society lead to a marginalisation of distributive concerns at the root of violent conflict in the Global South. To demonstrate the pervasiveness of the theory in legal practices and the problems with its understanding of the causes and dynamics of resource wars, I use the Sierra Leonean and Liberian TCs as a case study.
The publication, titled ‘Broken companies or broken system? Charting the English insolvency valuation framework in search for fairness’, adopts a normative approach to investigate the measurement of value in English insolvency and bankruptcy cases.
In the article, the most commonly used (by courts and practitioners alike) valuation techniques are assessed against a revised communitarian, fairness-orientated framework. Such framework is based on a modified version of Rawls, Finch and Radin’s social justice concepts of fairness.
Asking questions about fairness and fair value in insolvency is particularly important due to a variety of factors. These include the increased complexity of valuation cases, where intangible assets such as cryptocurrencies and intellectual property rights feature with increasing prominence and frequency. They also include the need to counteract the increasing risks of conflict of interests with some of the parties involved in these procedures, particularly in rescue proceedings.
Answering questions about fairness in valuation cases can no longer be avoided due to the public outcry associated with the use of certain corporate insolvency procedures such as pre-packaged administrations to connected parties or company voluntary arrangements by large retailers to avoid or significantly reduce rents.
Dr. Vaccari’s article investigates the structural components of the notion of fairness, explains the need for a revised communitarian, fairness-orientated framework to measure value in insolvency, and suggests how this could be implemented in practice.
This chapter considers the role of Islamic finance in promoting the Sustainable Development Goals (SDGs) in developing countries. The SDGs require unprecedented mobilisation of funds to support their implementation. Given the social and moral ethos and emphasis on prohibition of interest (riba) and asset-backed financing, Islamic finance offers an effective non-traditional means of financing for sustainable development activities and projects in developing countries. This chapter demonstrates that the ideology of Islamic finance, its attributes, principles, products, instruments and institutions all tend to be well-suited to boosting the SDGs. It also shows that Islamic finance has great potential in supporting developing countries efforts to finance the SDGs agenda.
Divided into seven sections, the chapter outlines sustainable development from an Islamic perspective, and the principles of Islamic finance, before assessing the role of Islamic financial institutions, sukuk (Islamic bonds), and Islamic social finance (zakat and waqf) in promoting the SDGs.
The chapter concludes that despite the remarkable growth in Islamic finance and its role in promoting the SDGs, further steps should be taken to maximise its potential. Islamic finance should promote innovative products that encourage people to use Islamic financial services, without needing to mimic conventional instruments and products, given that mimicry can cause public concern about sharia compliance.
Furthermore, one of the main challenges to Islamic finance solutions is variations in the legal frameworks of countries, such as the variation in collection and distribution of zakat, in which it could be deployed. This means that more work is required on the standardisation of legal frameworks and guidelines, to aid the structuring of Islamic financial products and institutions. Finally, it is important to raise awareness about Islamic finance products and institutions.
Dr Onyeka Osuji, Reader in Law at the University of Essex, recently co-authored a paper on ‘Corporate Social Responsibility as Obligated Internalisation of Social Costs’ together with A Johnston, K Amaeshi, and E Adegbite.
The authors propose that corporations should be subject to a legal obligation to identify and internalise their social costs or negative externalities.
Their proposal reframes corporate social responsibility (CSR) as obligated internalisation of social costs and relies on reflexive governance through mandated hybrid fora.
The authors argue that their approach advances theory, as well as practice and policy, by building on and going beyond prior attempts to address social costs, such as prescriptive government regulation, Coasian bargaining and political CSR.
The paper was published open access on 1 November 2019 in the Journal of Business Ethicshere.
Dr Onyeka Osuji, Reader in Law at the University of Essex, recently presented his research on mandatory modern slavery disclosure at two international conferences.
Disclosure
is an emergent regulatory strategy for corporate social responsibility (CSR) in
certain jurisdictions despite its original conception as a voluntary management
tool. As exemplified by recent anti-modern slavery legislations in some
jurisdiction, disclosure is growing in significance and reach. In extending
social responsibility to global supply chains, disclosure regulation implicitly
references ideas of gatekeeper responsibility and glocalisation and overcomes
the extraterritorial limitations of substantive regulation.
Anti-modern slavery legislations by California in 2010, the UK in 2015 and Australia in 2018 reflect the regulation by information approach based on a universal revenue threshold. The goal of the regulatory strategy appears to be two-fold. On the one hand, disclosure requirements may promote the awareness of modern slavery and encourage businesses to eliminate or reduce its existence in their operations, supply and purchasing chains. On the other hand, information generated through reporting requirements will be used by stakeholders like consumers and investors factor in purchasing and investment decisions. This market-based approach indirectly relies on stakeholder pressure to compel businesses to address modern slavery.
This research examines the underlying assumptions for disclosure-oriented modern slavery legislations. These assumptions include leverage and political CSR, adequacy of a revenue threshold test for the capacity to confront modern slavery in operations, supply and purchasing chains, business case justifications for CSR, and an activist and vibrant stakeholder group of investors, consumers and civil society.
The paper demonstrates the various limitations of the disclosure regulatory strategy of the modern slavery legislations and argues that it is at the lowest end of a hierarchy of effective legislated CSR. Alternative thresholds, including sector-based and regional approaches, may reflect the degree of risk and need for awareness and therefore approximate to the contextual understanding of CSR and its priorities. The reliance on the market-based reputation and stakeholder information regulation excludes direct positive and negative incentives for compliance. It may encourage symbolic statements of corporate policies and processes rather than substantive compliance and quality reporting of steps undertaken to reduce risks. The lack of provisions for monitoring, verification and enforcement and for responsibility, liability and accountability creates the potential for a “promise-performance gap” exemplified by deceptive and misleading statements.
This research was presented at the 18th International Conference on Corporate Social Responsibility (CSR) and 9th Organisational Governance Conference ‘CSR: Public and Private Perspectives’, Barcelos, Portugal (10-13 September 2019) and at the one-day conference ‘Critical Perspectives on “Modern Slavery”: Law, Policy and Society’, organised by the Wilberforce Institute for the Study of Slavery and Emancipation, University of Hull (30 October 2019).
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