The Greening Of The Insolvency System

Abstract

The urgency of tackling the challenges posed by climate change and other acute environmental issues is now widely acknowledged. These challenges significantly impact business solvency, especially in climate-exposed sectors. Vice versa, the insolvency of businesses can involve causing harm to the environment. Although these challenges are global, the fate of failing businesses is often addressed through domestic legal systems, even when they have cross-border activities. International insolvency instruments that have developed shared objectives and mechanisms that promote a more global approach do not focus on climate and environmental challenges. Taking a contextual approach to law and an international perspective, we suggest that the insolvency regime needs to "green" itself. A "green insolvency regime" would incorporate a notion of public interest, directing the assets of distressed debtors away from harmful activities and towards those consistent with mitigating climate change and reducing environmental harm. We further propose a starting taxonomy of scenarios that highlight this need to green the insolvency framework and illustrate how core mechanisms within liquidation and restructuring procedures can be transformed to address the climate and environmental challenges. The article also begins a discussion on the implications of this approach in cross-border cases with climate or other environmental impacts, to highlight how private international law aspects of insolvency may be reshaped to address climate and environmental concerns more prominently. Our approach follows a fairness-based philosophy underpinning the design of insolvency standards, which we suggest should be refined by overlaying it with environment-specific considerations.