Pre-Insolvency Proceedings: Objective and Justification

Abstract

This chapter starts with a brief outline of the pre-insolvency plan in the conceptual form proposed in this book. It then goes on to develop a normative foundation for pre-insolvency proceedings and formulates the boundary conditions that must be satisfied for their application. As part of the analysis the concepts of fair market value and liquidation value are examined and the differences between price and value are discussed. The chapter explains why pre-insolvency proceedings are to be conceived as a collective debt enforcement instrument of the creditors rather than a rehabilitation instrument of the debtor. The chapter concludes by defining pre-insolvency as the stage at which insolvency has become inevitable and argues that this is the earliest possible triggering event for the use of a collective enforcement procedure, such as the plan mechanism in the proposed form.