When Clearnet's UK CCP declared LBIE in default, the duty of Daniel Gisler, the Managing Director of Risk and Operations for the LCH was to work with Lehman staff to manage and neutralize open trades ...worth trillions of dollars and so help preventing the investment bank's collapse turning into a catastrophe that could overwhelm global financial markets. But instead of being welcomed into the headquarters of Lehman Brothers International Europe (LBIE) in London's Canary Wharf, Gisler and his colleagues found their way inside barred after court‐appointed administrators had taken command of LBIE just hours before. No one knew at that inauspicious time, that the biggest and most complex bankruptcy in the history of finance was just beginning. For LCH Clearnet Group's CCPs, the default declaration marked the start of a frantic race against time to manage and neutralize open positions with a notional value of US$10 trillion.
The venture capital (VC) industry supports innovation in an economy, and has seen much success over the last few years. However, with the inherent risk in any start-up business, the venture ...capitalist is bound to see some failures. This paper explores the effects of corporate and personal insolvency laws on financially distressed VC funded firms. It also compares the contract driven bankruptcy system to the court driven system, and their implications for failed VC funded firms. This paper relies upon qualitative analysis and draws upon interviews with academic experts, industry practitioners and secondary data. In the light of corporate insolvency, the research concludes that entrepreneurial firms are often ‘wound up’ rather than put into the bankruptcy system for liquidation/ reorganization because the realized value from the small firms often do not cover the cost of the bankruptcy process. Consequently, it is difficult to ascertain the impact of corporate insolvency laws on small businesses. On the contrary, it has been observed that the severity of the personal insolvency law does not affect venture capital financed entrepreneurs. The venture capitalists provide equity finance and the entrepreneurs do not need to risk their personal assets for collateral to acquire bank finance. The comparison between the US and UK systems of bankruptcy revealed that for small entrepreneurial firms, both systems are convergent to a greater degree than they are for larger firms i.e., the smaller the firm the more similar both the systems seem in relation to efficiency and the ability to salvage value from financially distressed firms.
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