Legal Issues in Corporate Governancein Pre-Bankruptcy Period

Abstract

The article covers the peculiarities of legal regulation for shareholders’ and governance bodies’ ofa corporation in pre-bankruptcy period including the restrictions for carrying out special corporateactions 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 consequencesof appearance of formal signs of insolvency and grounds for legal action. The research containsaspects of correlation between corporate and insolvency legislation in order to reveal not sufficientlegal regulation of special issues where ambiguity of contents of rights and duties of participants ofcorporate relations cause risks of adverse effect such as liability or invalidity of a bargain. The articleintroduces examples of confusion of facts reflecting legal signs of insolvency and those irrelevant tothem as a result of insufficient attention to distinction between them in legal acts. The most importantproblems in this sphere of regulation are the following: exercising the right and carrying out theobligation to file a bankruptcy petition, uncertainty in the issue concerning a proper body responsiblefor making this decision, the absence of defined terms of filing the petition, ambiguity of the groundsfor the refuse to pay dividends within pre-bankruptcy period and violent construction of the notionsigns of insolvency for this purpose, unequal protection of the creditors’ rights in case of restrictionof shareholders’ rights to demand acquisition of their shares by the corporation. An important taskof the legislator is considering specifics of corporate relations during the pre-bankruptcy period andproviding guarantees of inadmissibility of bearing risks of violent construction of legal provisions byany participants of these relations.