SUMMARY

Although recent phenomena confirm the relevance of corporate dissolution, legal scholarship rarely discusses it at length or recognises its importance. This article provides a framework on how corporate law deals with dissolution. After developing a normative criterion for value maximizing dissolution, it sets out how corporate law tries to facilitate or promote value maximizing dissolution, in accordance with the identified normative criterion. The bedrock of this framework is the dissolution incentive for several corporate constituents, as identified in this article. The framework presented in this article allows to explain and assess the existing regimes on dissolution in national legal systems. It offers the tools for an optimisation of these regimes, taking into account the underlying principles and objectives of corporate law.

KEYWORDS

Dissolution; liquidation; capital lock-in

Introduction. Dissolution is one of the most fundamental changes in a corporation's life. Since it generally occurs voluntarily and creates potential conflicts between the interests of various corporate constituents, it can be a source of opportunism and agency costs. Recent phenomena illustrate the potential relevance of corporate law in this field. Phoenix activity, for example, occurs when a corporation is dissolved with the aim of avoiding some or all of its legal obligations, while its business survives and is carried on through another company. Likewise, legal doctrine recently focused on the fraudulent use of corporate dissolution, thereby evading creditors’ claims. Despite the relevance of these phenomena, a thorough analysis of how corporate law deals with dissolution is missing until today. This article sets out the building blocks for this analysis by discussing how corporate dissolution raises agency costs and grasping how corporate law tries to mitigate these in an encompassing and universally applicable framework. We illustrate our findings with the corporate dissolution proceedings in Belgium, the Netherlands, and the United Kingdom. Belgium and the Netherlands are chosen because of recent legislative and scholarly interest in the topic, whereas the legal regime in the United Kingdom deviates on several aspects.

“CORPORATE SUICIDE”: DISSOLUTION AND ITS VOLUNTARY NATURE

Duration. Today, incorporating for an indeterminate duration is the default rule in most legal systems: dissolution is possible, but requires positive action. This default rule stimulates long-term investments in the firm and provides the corporation with the potential of a perpetual existence.