The law and economics of lockdown mitigation: Bankruptcy errors in the UK

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Abstract / Description of output

The UK Government has undertaken unprecedented economic activity to support UK business during the Covid-19 pandemic. This article applies the law and economics of corporate bankruptcy to these provisions. In particular, it examines whether legal responses to the pandemic encourage type I bankruptcy errors (where a company which could be saved enters a terminal insolvency process) or type II bankruptcy errors (where a company which could not be saved avoids a terminal insolvency process). Whilst more could undoubtedly have been done, it seems that the UK Government’s actions to avoid type I errors arising from the pandemic that their actions may have caused type II errors. More pertinently, it is almost impossible for the UK Government to lift these protections in a neutral way – if all are uniformly lifted too soon then this will result in type I errors; if all are uniformly lifted too late then this will result in type II errors. It is impossible and undesirable to decide when to lift protections on a case-by-case basis, and any attempt to selectively lift protections results in the UK Government deciding which sectors have advantages post-Covid-19 and which do not. Accordingly, in setting and lifting legal protections, the UK Government finds itself a key market actor in deciding the post-Covid-19 shape of the UK market.
Original languageEnglish
Pages (from-to)344-360
Number of pages17
JournalInternational Insolvency Review
Volume30
Issue number3
Early online date7 Sept 2021
DOIs
Publication statusE-pub ahead of print - 7 Sept 2021

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