Creditor protection and company law, do they need each other?

At least since the Second World War, but probably since before that, the protection of creditors’ interest has been a central policy underpinning much of continental European law or at least legislation in the corporate field. Arguably, European company law has always been informed by the interests of multiple stakeholders, including shareholders, when compared to Delaware law in the US, which until recently seemed quite manager-oriented, even though recently the US public corporation landscape has become far more shareholder-interesttinted, and recently for at least large corporations, ESG issues have become salient.

It is likely that the European attention to creditor protection is explained in large part by the importance of banks, rather than capital markets, in funding European companies large and small. Germany may have been even more bankfriendly in its regulation than the average western European country when its rules on legal capital were exported to the rest of the then European Economic Community and later the 28 EU member states through what used to be the (1976) 2nd Company Law Directive (which, it must be said, contained important British add-ons like the rules on financial assistance).

The traditional story about legal capital is well-known. Around the turn of the millennium, many academics began to voice views which had earlier been espoused by a few lone pioneers like Friedrich Kubler, namely that the whole legal capital regime was inefficient in three fundamental ways: it didn't adequately protect creditors (among other reasons because it was not adapted to the different risk profiles of companies subject to it), it was largely superfluous for contractual creditors who could take care of their interest precisely through contract (e.g. loan and bond covenants), and because it did thus not create benefits, there was nothing in the system to off set the costs it imposed on companies (e.g. the ban on contributions of future services, the sensible but overbroad rules on financial assistance and share buy backs). Of course, “non-adjusting” creditors like tort victims couldn't fend for themselves, but legal capital came across as a singularly inefficient mechanism for trying to protect them, with mandatory insurance being preferable in many respects.