Legal Issues in Corporate Governance in Pre-Bankruptcy Period

Abstract

The article covers the peculiarities of legal regulation for shareholders' and governance bodies' of a corporation in pre-bankruptcy period including the restrictions for carrying out special corporate actions and subsidiary duties imposed on the representatives of governance bodies in this period. Whereas the term pre-bankruptcy period is quasi legal and is frequently used in economic context, authors describe separately legal consequences of anticipation of bankruptcy and consequences of appearance of formal signs of insolvency and grounds for legal action. The research contains aspects of correlation between corporate and insolvency legislation in order to reveal not sufficient legal regulation of special issues where ambiguity of contents of rights and duties of participants of corporate relations cause risks of adverse effect such as liability or invalidity of a bargain. The article introduces examples of confusion of facts reflecting legal signs of insolvency and those irrelevant to them as a result of insufficient attention to distinction between them in legal acts. The most important problems in this sphere of regulation are the following: exercising the right and carrying out the obligation to file a bankruptcy petition, uncertainty in the issue concerning a proper body responsible for making this decision, the absence of defined terms of filing the petition, ambiguity of the grounds for the refuse to pay dividends within pre-bankruptcy period and violent construction of the notion signs of insolvency for this purpose, unequal protection of the creditors' rights in case of restriction of shareholders' rights to demand acquisition of their shares by the corporation. An important task of the legislator is considering specifics of corporate relations during the pre-bankruptcy period and providing guarantees of inadmissibility of bearing risks of violent construction of legal provisions by any participants of these relations.