Dynamics of Change in Corporate Insolvency

Cycles of legal change seldom begin with a 'clean slate'. A myriad of factors, ideas, institutions and interest groups may come together to influence legal changes in a virtually infinite number of permutations. So how are we to approach the task of understanding a given cycle of change? How do we capture the complex socio-political dynamics so as to explain the phenomena of such changes? And, more specifically, how do we apply this approach to the study of corporate insolvency law?

In a new monograph—Reinventing Bankruptcy Law—I draw together the socio-legal theory of recursivity of law (Terence Halliday and Bruce Carruthers, see eg Bankrupt and 'Recursivity of Global Normmaking') with ideas from historical institutionalism (Paul Pierson, Douglas North, see eg Politics in Time) to shed light on legal changes in Canadian corporate restructuring. I employ a socio-legal analysis within a long and broad institutionalist view of history, identifying distinct cycles of change and tracing those cycles over the course of the twentieth century. This methodology produces a rich analysis of the socio-legal dynamics of change and the long-run impact of changes over time—one which transcends traditional accounts of the particular Canadian corporate restructuring statute: the Companies’ Creditors Arrangement Act (CCAA).

As an explanatory account of a specific insolvency regime, the study is revealing. It describes the CCAA—a tremendously flexible restructuring regime—as a hybrid of receivership and English schemes of arrangement with influences from Chapter 11 of the US Bankruptcy Code. Further, it argues that courts and the legislature have effectively switched roles, such that CCAA 'law' flows from ad hoc restructuring practices (based largely on the exercise of judicial discretion) into legislation by virtue of Parliament’s tendency to memorialise case law developments into statutory form. Thus, the book illuminates the mechanisms of change and the role of interest groups and institutions in shaping the current Canadian restructuring regime in an ongoing, dynamic cycle of practice-driven developments.

At a broader level, the study is concerned with the evolution of ideas in a legal context and how factors such as accidents of timing and path dependence shape legal outcomes. It is in this connection that the book is likely to be of the most interest to an international audience. In combining recursivity of law and historical institutionalism and applying this approach to the study of insolvency law, the work dovetails with the scholarship of Halliday and Carruthers and complements that of Iain Ramsay (Personal Insolvency in the 21st Century). It is similar to the scholarship of bankruptcy historians David Skeel (Debt’s Dominium) and Thomas GW Telfer (Ruin and Redemption), but the focus is different. My primary concern are the social and political dynamics of change in an insolvency context; the history of Canadian corporate restructuring is a vehicle for exploring those dynamics.

A goal of the book is to contribute to deeper understandings of corporate insolvency by using a theoretical frame that brings to light the role of institutions and social dynamics in this unique legal practice area. It is hoped that the research approach in Reinventing Bankruptcy Law will be useful to other scholars studying corporate insolvency developments in jurisdictions around the world.

Virginia Torrie is an Assistant Professor at the Faculty of Law, University of Manitoba and the Editor-in-Chief of the Banking & Finance Law Review.