Business rescues and wrongful/insolvent trading, supervisory law for financial institutions and perspectives on Islamic financial institutions
The first part of the paper will focus on business rescues. A financial crisis of a company which is close to insolvency is an acid test for corporate governance. Not only managers but also shareholders tend to an opportunistic behavior. Often, they put all their eggs in one basket and speculate at the cost of their creditors. German law tries to prevent this by specific obligations to provide information, and by imposing liability in case of delays in filing for insolvency proceedings. The convergence of this model to the liability for wrongful or insolvent trading in the common law system will be analysed as well as the effects of these rules on corporate governance. The focus will also be on the new rules on debt to equity swaps in Germany and comparing them with their Anglo-Saxon equivalents. A brief discussion of the “too big to fail” phenomenon of financial institutions will conclude this section.
The second theme is supervisory law for financial institutions. Financial institutions, organized as German stock corporations, not only have to comply with the general rules on good corporate governance, but also have to adhere to specific rules for financial institutions. Since the financial crisis plenty of supervisory acts have been enacted. They include several special rules and duties for the managing board and the supervisory board of financial institutions. After giving a brief overview of these special rules the focus will specifically be on the question whether some of these rules should serve as a role model within the general debate on corporate governance. It will also be considered whether it would be useful to integrate special requirements into the general German Corporate Governance Code or whether there should be a special code for financial institutions.
The paper will conclude with some perspectives on Islamic financial institutions. Islamic financial institutions offer interest-free financial products that are Sharia compliant. These financial products are certified and controlled by a Sharia Supervisory Board (SSB). The members of these SSB are external Sharia scholars who are usually members of several SSBs (up to 70 at the same time). In this context the main aspect of the debate on corporate governance is the relationship between the SSB and the regular supervisory board and the management. Is the management still independent? Could the SSB become a shadow director? Is there a need for rules to prevent conflicts of interests?