778 the impact of corporate insolvency

their terms to perceived risks, are well informed and stand to benefit (at least through interest mechanisms and sales of ancillary bank services) from the profits made by the enterprise. There are, however, some reasons why the state can be said to enjoy the benefits of risk taking and should be prepared on grounds of fairness to fund acquired rights. Entrepreneurial risk taking will be encouraged by such funding and this will conduce to wealth creation which in turn will benefit the state in many ways.105 It would allow rescues and redistributions to occur in a lower friction manner than would be possible under a regime demanding that creditors should bear such costs. This may prove fair to taxpayers in so far as there is a return to the state for its efforts: the lower friction regime of enterprise would be likely to produce, overall, greater wealth for the state.

On both efficiency and fairness fronts, it seems there is a case for state funding of acquired rights in two situations.106 First, if the anticipated incidence of abuse through ‘tactical’ dismissals is reasonably small – and outweighed by gains in net wealth creation – it would be sensible to fund all insolvency-related dismissals from state sources. If, however, the likelihood of such abuse is high, it will be necessary to distinguish, at lowest cost, between objectively necessary dismissals (which would be state funded) and unjustifiable or ‘tactical’ dismissals (which would not be paid for by the National Insurance Fund). Guidance on these choices can best be derived from research into the severity of risks that state funding might be abused and into the potential of new laws and processes (such as reversals of proof)107 to reduce the uncertainties and transaction costs that flow from efforts to separate economically necessary from unjustifiable dismissals.

Conclusions

Employees are in some ways the lost souls of insolvency law. Their working contributions are the lifeblood of companies, yet the law does remarkably little to involve them in insolvency procedures. This is

105Amongst other things there would, as noted above, be savings on National Insurance Fund benefit payments where rescues are effected.

106On the (attractive) case for socialising employee claims, see Davies, ‘Acquired Rights’, p. 53.

107See Frisby’s suggestion (noted above) of lowering costs by applying a rebuttable presumption that a dismissal is not objectively necessary where dismissal and reengagement occurs preand post-transfer: Frisby, ‘TUPE or not TUPE?’, p. 269.

because the law has failed to develop on the basis of a coherent and appropriate conception of the employee. On the one hand, insolvency law sometimes sees the employee as a creditor who merits a certain amount of protection. On the other, he or she is occasionally treated in a manner consistent with the rhetoric of stakeholding. Policies on employees, moreover, are driven, in relation to some issues, by considerations of economic efficiency yet on others they are shaped by reference to ethical and social justice arguments. The way to resolve such difficulties is, first, to develop a solid informational and research base so that the implications of dealing with employees in different ways can be calculated rather than guessed at. Some of the works referred to in this chapter offer evidence that the foundations of such research are now being laid. Much more work needs to be done, however, before reliable judgements can be made on issues such as the role of employee loyalty within rescues; the quality of information that tends to be available to potential parties to rescue; or the role played by employee representatives in designing and achieving turnarounds. Second, there needs to be greater clarity not merely about the objectives of insolvency law as a whole, but about the conception, nature and extent of employees’ rights in the corporation. Finally, and building on these developments, there needs to be a greater openness (even political honesty) regarding the trade-offs of risks, values and interests that are involved in insolvency law.108 This means that tensions between the interests of shareholders, creditors, employees, the state and other stakeholders have to be confronted rather than hidden away.

108See, for example, Armstrong and Cerfontaine, ‘Rhetoric of Inclusion?’, p. 45 and the authors’ attack on (the then) DTI approaches as ‘tinkering’.