Suitability of EU legal capital rules as a mechanism of creditor protection - A comparative and functional study

This thesis evaluates the adequacy of EU legal capital rules as a mechanism of creditor protection. This role indisputably constitutes the fundamental purpose of the regulation of such doctrine by EU law in the last four decades, since the original Capital Directive until the current codification on Company Law. This thesis questions the effectiveness of legal capital rules for that aim once transposed and incorporated into Member States’ national laws and aims to unravel the impact that they have in practice from a law and economics perspective and by means of a comparative and functional analysis. Starting from the premise that providing creditor protection is not only desirable ex post but also ex ante, this thesis analyses legal capital rules alongside other mechanisms - both real and theoretical- and argues that prima facie EU legal capital rules are not fit for that purpose. However, an empirical and comparative study on the implementation of these rules and enforcement of creditor rights in Spain and the UK suggests that Member States’ approach has a great impact on the effectiveness and functionality of these rules in practice, and therefore the EU framework does not ultimately determine their adequacy. A comparative analysis between these two Member States demonstratesthat creditor protection is largely provided by –and achieved through- means of directors’ liabilities and insolvency rules, and the relevance of legal capital rules per seis rather limited. Nevertheless, legal capital rules have a higher impact and functionality in Spain than in the UK, namely due to Recapitalise or Liquidate rules (ROL) and legal reserves. This thesis advocates that a system containing ROL based on adequate capitalisation and assisted by the control of solvency tests and related directors’ liabilities together would provide a more comprehensive regulatory package than the framework provided by the EU Directive.