Premium
Corporate Governance and Financial Distress: when structures have to change
Author(s) -
Mumford Michael J.
Publication year - 2003
Publication title -
corporate governance: an international review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.866
H-Index - 85
eISSN - 1467-8683
pISSN - 0964-8410
DOI - 10.1111/1467-8683.00301
Subject(s) - insolvency , corporate governance , creditor , statutory law , receivership , bankruptcy , business , accounting , statute , financial distress , limiting , control (management) , order (exchange) , finance , economics , financial system , law , political science , debt , management , mechanical engineering , engineering
This paper indicates some implications of corporate financial distress for corporate governance. Formal measures, laid down in statute and commercial law, and informal steps established by financial practice, both respond to the threat of insolvency by limiting (and sometimes removing) corporate control of incumbent management. Both need to be considered together in order to appreciate their effects in practice. Shifts in control are associated with UK statutory insolvency procedures, and the paper reviews accounting–based rules intended to protect creditors. It is argued that cash forecasts are the only effective basis for such rules.