‘All the tools in the toolbox’: some reflections on the proposed recalibration of corporate insolvency laws for environmental ends

The climate crisis has provoked a new wave of scholarship on insolvency law and ESG. This scholarship explores how corporate insolvency law rules – both of deployment, and of distribution – could be recalibrated to better incentivise climate change mitigation, and/or reduce environmental harms more generally. In this literature, insolvency laws are positioned as instruments in the environmentally-minded policymaker’s toolkit, lying alongside a bundle of other rules for the regulation of corporations, from which the policymaker can make a selection for recalibration, having regard to the salience and stickiness of each segment of the rules from time to time.

In this paper, I offer some reflections on this new wave of scholarship, focusing particularly on some methodological questions. I suggest that claims about how insolvency laws might most fruitfully be developed in service of some environmental (or other) end should be framed modestly: not as prescriptions for action by those charged with the interpretation and application of existing rules, but as claims about how, in theory, a different approach to the design of an insolvency rule might be more likely to produce the kind of incentive effects that the environmentally-minded policymaker is aiming at. I question whether, in theory, there is a good case for some of the proposals for recalibration made in the ‘new wave’ literature, and explain why the so-called ‘debate’ between ‘proceduralist’ and ‘traditionalist’ bankruptcy scholars is of limited utility in answering this question. I find theoretical support for proposals for elevating the priority of environmental claims in the rules governing the realisation and distribution of an insolvent debtor’s assets.