Inside Debt Financing

Alessandro Pomelli

Inside Debt Financing

Theory, Practice, and Regulatory Approaches

Debt finance raised from corporate insiders has attracted the attention of legal scholars over the past several years. After reviewing the literature on the benefits and costs of inside debt financing and illustrating the diverse regulatory approaches adopted by prominent jurisdictions, the book reassesses the risk of opportunistic insider lending based on the state of a company’s finances.

Pages: 198

ISBN: 9788835150800

Edizione:1a edizione 2023

Publisher code: 10389.1

Info about Open Access books

Debt finance raised from corporate insiders has attracted the attention of legal scholars over the past several years. Such an interest comes as no surprise. The variety of legal treatments reserved for insider loans across Europe, the United States and in other jurisdictions attests to an intriguing absence of any regulatory uniformity despite similar financing patterns. After reviewing the literature on the benefits and costs of inside debt financing and illustrating the diverse regulatory approaches adopted by prominent jurisdictions, the book reassesses the risk of opportunistic insider lending based on the state of a company's finances. In doing so, the book sheds light on the net costs associated with financially sound firms issuing senior debt, whether secured or unsecured, to their insiders and, by contrast, the net benefits of allowing insiders to make senior unsecured loans to firms that are in or near insolvency. Following the re-examination of the benefits and costs of insider lending, novel requirements are recommended for an efficient and fair legal response to inside debt as a source of funding for both solvent firms and financially-distressed ones.

Alessandro Pomelli is Associate Professor of Commercial Law at University of Bologna. He has been Visiting Professor at the Universities of Hamburg, Tel Aviv, Haifa and at China University of Political Science and Law (Beijing). Author of articles on corporate governance, takeover law and securities regulation, his main research interests lie in the law & economics and law & finance of corporations and capital markets. He has been involved in policy work with the European Commission and in 2016 was appointed expert for the European Parliament in corporate law.

Introduction
Benefits and Costs of Inside Debt Financing
(Benefits of Inside Debt Financing; Costs of Inside Debt Financing)
Patterns of Inside Debt Financing
(Widely-Held Firms and Closely-Held Firms; Dominance of Inside Debt Financing over Inside Equity Financing in Closely-Held Firms; Small, Privately-Owned Firms; Groups of Companies; Leveraged Transactions; Legal versus Contractual Subordination of Inside Debt Financing; Strategic Interests against Contractual Subordination of Inside Debt Financing)
Shareholders' Incentives and Appetite for Risk
(Shareholders' Incentive Structure when a Firm Is Fully Equity-Financed; Shareholders' Incentive Structure when a Levered Firm Is Fully Solvent; Shareholders' Incentive Structure when a Levered Firm Is in the Vicinity of Insolvency; Shareholders' Incentive Structure when a Levered Firm Is Insolvent)
Desirability of Inside Debt Financing upon a Firm's Solvency, Pre-Insolvency and Insolvency
(The Impact of Unsecured Inside Debt Financing on Capital Structure, Insider Incentives and Creditor Interests when a Firm Is Fully Solvent; The Impact of Unsecured Inside Debt Financing on Capital Structure, Insider Incentives and Creditor Interests when a Firm Is in the Vicinity of Insolvency; The Impact of Unsecured Inside Debt Financing on Capital Structure, Insider Incentives and Creditor Interests when a Firm Is Insolvent; The Impact of Secured Inside Debt Financing on Capital Structure, Insider Incentives and Creditor Interests)
Regulatory Approaches to Inside Debt Financing
(The No-Subordination Regulatory Approach; The Equitable Subordination Regulatory Approach; The Automatic Subordination Regulatory Approach; The Avoidable Preference Rules)
Determinants of an Efficient and Fair Regulatory Intervention on Inside Debt Financing
(Efficiency and Fairness Objectives; Optimal Rules on Unsecured Inside Debt Financing; Optimal Rules on Secured Inside Debt Financing; Subordination, No-Subordination and the Absolute Priority Rule; Subordination, No-Subordination and the Relative Priority Rule; Subordination, No-Subordination and Debtor-in-Possession Financing; Optimal Avoidable Preference Rules; The Notion of Insider for Purposes of Subordination of Inside Debt Financing and Avoidance of Preferences)
A Novel Time-Phased, Information-Forcing Subordination Approach to Inside Debt Financing and the Accompanying Avoidable Preference Rules
(The Contours of a Time-Phased, Information-Forcing Subordination Approach; The Treatment To Be Reserved for Secured Inside Debt Financing; The Avoidable Preference Rules Needed in Support of a Time-Phased, Information-Forcing Subordination Approach; The Benefits of a Time-Phased, Information-Forcing Subordination Approach; The Costs of a Time-Phased, Information-Forcing Subordination Approach; Comparing This Novel Approach with Alternative Solutions)
Conclusion
References.

Serie: Collana del Dipartimento di Sociologia e Diritto dell’Economia Università di Bologna

Subjects: Politics, law

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