Intra-Group Financing and Enterprise Group Insolvency

Introduction

The enterprise group is a central model for organising economic activity, with nearly every major firm structured as one. From the 15th-16th century Medici system of partnerships and 17th-century European colonial trading empires (eg the Dutch and English East India Companies), to the emergence of modern groups in the late 19th century, corporate groups have played a crucial role in the economic and political life of modern societies.

Yet the enterprise group presents a unique case, combining separate entities with limited liability and entity shielding, and integrated business operations facilitated through elaborate networks of financial arrangements. These arrangements do not undermine entity separateness, as group entities retain their independent (legal) existence and interests. In practice, however, they are often driven by the interests of the group as a whole, promote group interdependence, and weaken the protection afforded by corporate shields. Consequently, the idea of legal separateness, which underpins modern insolvency law, often fails to reflect the economic realities of group integration.

The question is: How does (and should) insolvency law respond to both the legal reality of entity separateness and the economic reality of group integration? I seek to answer this question in my new book Intra-Group Financing and Enterprise Group Insolvency: Law and Practice (Edward Elgar Publishing, 2025). The book examines modern commercial practices, case law, and the legal tools available in three leading restructuring hubs: the UK, the USA, and the Netherlands.

Intra-group financing and group failures

The insolvencies of multinational enterprise groups are each shaped by unique circumstances, causes of financial distress, and outcomes. Think of Lehman Brothers, Nortel Networks, Oi Brazil, and more recently LATAM Airlines, Hertz, Celsius, and FTX. 

Despite their differences, these cases share important commonalities, including the existence of multi-layered corporate structures (leading to multiple insolvency proceedings across the globe), the integrated nature of their business, the division of roles and responsibilities between group members, and, finally, the prevalence of group-specific financial arrangements: cross-guarantees, co-debtorships, intra-group loans, and centralised cash management. These financial arrangements seek to optimise liquidity allocation within the group, maximise economic efficiency by minimising tax exposure, provide access to foreign capital markets and ultimately secure better lending terms.

While the group is solvent, these arrangements usually do not create any problems. In contrast, during insolvency, they frequently result in disputes over the validity of pre-insolvency intra-group value transfers, the calculation, attribution and enforcement of intercompany claims, access to funds and valuable commercial information from other group members, etc. Importantly, a group-wide enforcement through the simultaneous filing of claims against multiple group companies acting as co-debtors or guarantors raises fairness concerns, may create contagion, and can lead to the spread of distress across the corporate boundaries of enterprise group members. 

In my previous work, I argued that the ability to deal with group financial distress in a centralised or well-coordinated manner—through international legal instruments, such as UNCITRAL Model Laws and cross-border insolvency protocols—is crucial to preserving and maximising enterprise value. Intra-Group Financing and Enterprise Group Insolvency builds on this research and focuses on substantive insolvency law tools that have gained momentum over the past decade.

The ‘extension effect’ of insolvency law

While individual members of an enterprise group are recognised in law, the group itself is not treated as a distinct legal entity. Unlike in certain other areas of law (eg competition law), where the (economic) concept of an enterprise or undertaking transcends the boundaries of a single legal entity, insolvency law traditionally operates on an entity-by-entity basis. I refer to this as the ‘entity bias’.

Without disputing the importance of limited liability—though its justification for highly integrated groups remains debatable—I argue that entity separateness does not, and should not, automatically result in complete entity insulation. However, the greater the implications for limited liability and asset partitioning, the more stringent the requirements should become for applying a particular legal tool. This is why, for instance, substantive consolidation— a legal tool that leads to a complete disregard of the corporate form and eliminates intercompany claims— is typically confined to exceptional cases involving the intermingling of assets and liabilities within a group or instances of fraud and abuse of the corporate form.

In my book, I examine a range of legal tools designed to safeguard group value and mitigate the disruptive consequences of intra-group financial arrangements. What these tools have in common is their ability to extend the effects of insolvency law rules and protections to third parties, such as group guarantors or co-debtors. In other words, they create an ‘extension effect’ in insolvency law by (i) enabling the restructuring of group liabilities within a single procedure (via third-party releases), and (ii) providing a temporary relief from enforcement actions to facilitate a group-oriented solution (via the extension of a bankruptcy stay to the debtor’s affiliates). A group-mindful approach is also evident in transaction avoidance cases, where courts take into account group considerations (ie group characteristics and intra-group relations and dependencies).

Conclusion

Intra-Group Financing and Enterprise Group Insolvency discusses the evolving landscape of insolvency law, which increasingly addresses the challenges of group insolvencies. Alongside examining new legal tools, it also aims to dissect the factors that play an important role in determining whether a group-mindful approach should be adopted. Among these factors are:

• Group integration and interdependence. For fully integrated businesses—where group entities operate as a single enterprise and depend on each other, and where the collapse of one company is likely to trigger the failure of other group companies or the entire group—context-specific tools and solutions tailored to the group’s circumstances are often justified.
• Financial condition of group entities benefitting from extended insolvency law safeguards. In principle, such entities should themselves be in financial distress. Otherwise, any intrusion on creditors’ property or contractual rights may be difficult to justify.
• Purpose and nature of the procedure (eg restructuring vs piecemeal liquidation, financial vs operational restructuring). For example, in a piecemeal liquidation, the rationale for preserving going concern value appears to be less compelling, thereby making third-party releases less feasible.
• Prevalence of public interest considerations. The stronger the public interest, the more likely it is that the law will acknowledge and respond to the group economic reality. This is particularly evident in bank resolution contexts.

Ilya Kokorin is a Research Associate at the Amsterdam Center for Law & Economics (University of Amsterdam) and Supervision Officer at the Dutch Authority for the Financial Markets (AFM).