Grey matters

 Read our article in the Cayman Financial Review Magazine, eversion 


 Paul B Miller,

The Future for Business Trusts: A Comparative Analysis of Canadian and American Uniform Legislation,  

36 Queen’s Law Journal (forthcoming 2011).

Available at


The trust serves a variety of important commercial functions, yet remains under-analysed and underutilised. In both Canada and the United States, the lack of dedicated organisational law has diminished the commercial appeal and utility of business trusts, inspiring recent reforms through draft uniform legislation – the Canadian Uniform Income Trusts Act and the American Uniform Statutory Trust Entity Act. The author critically reviews and assesses the two uniform statutes.

He argues that they reflect markedly different views on the goals of organisational law. The Canadian legislation supposes that the trust should be a fixed organisational form subject to extensive mandatory regulation. It reflects the relatively modest goals of improving the governance of income trusts and resolving uncertainty over the applicability of ordinary trust law to income trusts while avoiding rules that inhibit value and tax arbitrage. The American legislation has more complex and ambitious goals. It creates an entirely new entity intended to offer efficiency gains by virtue of its extraordinary adaptability to different business purposes as well as market and settlor preferences. The author offers a functional assessment of the uniform legislation, arguing that each statute has mixed success in meeting its legislative objectives. The author also offers normative evaluation of the uniform legislation, focusing on positions taken on key normative questions of organisational law. The Canadian statute gives significant protection to investors but not other stakeholders. The American statute offers flexibility at the cost of accountability, with significant deficits in investor and stakeholder protection.

CFR comment:
Business trusts are a key tool for many offshore transactions and offshore jurisdictions’ law is often in advance of onshore jurisdictions’ laws with respect to trusts (as UWI law professor Rose-Marie Antoine has argued). This paper compares two crucial statutes in onshore jurisdictions and will be useful reading to anyone with US or Canadian clients contemplating using a trust for business.


 Mathias M Siems, Leif Herzog and Erik Rosenhäger, 

 The Protection of Creditors of a European Private Company (SPE), 

12 European Business Organization Law Review 147-172 (2011).

Available at:


Soon we can expect a new type of company: the European Private Company (Societas Privata Europaea – SPE) aimed at small and medium-sized enterprises in the EU. In this article, we analyse how creditors of future SPEs will be protected. In the first part, we identify on a general level how creditors can be protected. Then, we turn to the tools used in the different draft versions of an SPE statute (Commission Draft, EP Draft, Presidency Compromise). As these do not cover all aspects of creditor protection, the next part examines how these gaps ought to be filled. Subsequently, we discuss whether, from a normative perspective, creditor protection in the EU should be further harmonised. Overall, we conclude that what emerges is a mixed picture between various levels of European and national rules. This may not be ideal but it may be the price worth paying in order to reach political agreement on SPE law.

CFR comment:
As the last few years have shown, understanding the legal environment when problems arise is critical to structuring transactions properly. The new European entity, the SPE, will undoubtedly play an important role in transactions in the future and this early examination of bankruptcy issues surrounding SPEs will be useful in planning transactions involving them.


Douglas Arner,  

Adaption and Resilience in Global Financial Regulation, 

89 North Carolina Law Review 101-148 (2011).

Available at:


The global credit crisis of 2008 has demonstrated beyond any doubt that pre-existing international arrangements were insufficient to preserve stability in the global financial system, resulting in the most serious global economic and financial crisis since the Great Depression. This article examines the agenda being pursued through the Group of 20 (G20), Financial Stability Board (FSB) and related organisations to reform international financial regulation in the wake of the global financial crisis, focusing on whether the international regulatory agenda in fact addresses the fundamental sources of systemic risk underlying the global crisis. In addressing this question, the article begins by suggesting the basic elements of a financial regulatory system to effectively address systemic risk, arguing that in each case, the global financial crisis has highlighted specific failures of the pre-crisis regulatory approach, then provides an overview and analysis of international responses to the global financial crisis, focusing on the G20 and FSB. The article concludes, arguing that, while much has been achieved to date, the post-crisis international regulatory reforms that have been agreed would not have prevented the global financial crisis nor are sufficient to lay the foundations for future global financial stability.

 CFR comment:
Hong Kong University law professor Douglas Arner is one of the top commentators on financial regulatory law and his work is always intriguing. This paper examines the G20 reform efforts and finds them unlikely to lead to measures that would be able to prevent a repeat of the 2008 crisis. Arner’s conclusion is sobering.


Christian Schmieder, Claus Puhr and Maher Hasan, 

 Next Generation Balance Sheet Stress Testing,  

 IMF Working Paper WP/11/83 (2011).

Available at

This paper presents a “second-generation” solvency stress testing framework extending applied stress testing work centred on Cihák (2007). The framework seeks enriching stress tests in terms of risk-sensitivity, while keeping them flexible, transparent and user-friendly. The main contributions include (a) increasing the risk-sensitivity of stress testing by capturing changes in risk-weighted assets (RWAs) under stress, including for non-internal ratings based (IRB) banks (through a quasi-IRB approach); (b) providing stress testers with a comprehensive platform to use satellite models and to define various assumptions and scenarios; (c) allowing stress testers to run multi-year scenarios (up to five years) for hundreds of banks, depending on the availability of data. The framework uses balance sheet data and is Excel-based with detailed guidance and documentation.

CFR comment:
The weaknesses of the EU and US “stress tests” make clear that these regulatory measures will be changed in the future. This IMF working paper is a good window on the direction those regulations are likely to evolve toward.


Edouard Martin, Irina Tytell and Irina Yakadina,  

France: Lessons from Past Fiscal 

Consolidation Plans, IMF Working Paper WP/11/89 (2011).

Available at

This paper analyses past fiscal consolidation plans and their outcomes in France. It covers the early attempts at fiscal consolidation in the 1970s and the 1980s (Plan Barre and Virage de la Rigueur), the first episode of medium-term fiscal consolidation in 1994–97 ahead of joining the European Economic and Monetary Union and the fiscal consolidation under the corrective arm of the European Stability and Growth Pact in 2003–07. These experiences offer important lessons for the future, suggesting that binding constraints help focus policymakers’ attention and justify their actions; spending restraint needs to be shared and coordinated across all levels of government; and appropriate deficit targets could help in enforcing budgetary discipline in good times.

CFR comment:
Worried about Greece and Ireland? Portugal and Spain? Italy? Europe in general? This IMF working paper looks at how France handled past financial problems and shows the importance of binding constraints to resolving financial problems – a worrisome issue given how soft the constraints on the PIIGS seem to be.


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Andrew P. Morriss

Andrew P. Morriss, Chairman, is the D. Paul Jones, Jr. & Charlene Angelich Jones – Compass Bank Endowed Chair of Law at the University of Alabama School of Law. He was formerly the H. Ross & Helen Workman Professor of Law and Business at the University of Illinois,Urbana-Champaign. He received his A.B. from Princeton University, his J.D. and M.Pub.Aff. from the University of Texas at Austin, and his Ph.D. (Economics) from the Massachusetts Institute of Technology. He is a Research Fellow of the N.Y.U. Center for Labor and Employment Law,and a Senior Fellow of the Institute for Energy Research, Washington,D.C., as well as a regular visiting faculty memberat the Universidad Francisco Marroquín,Guatemala. He is the author or coauthor of more than 50 scholarly articles, books, and bookchapters, including Regulation by Litigation (Yale Univ. Press 2008) (with Bruce Yandle and Andrew Dorchak), and is the editor of Offshore Financial Centers and Regulatory Competition (American Enterprise Institute Press 2010).

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