forthcomig in European Business Law Review

Controlling Tunnelling Through Lending Arrangements: The Disciplining Effect of Lending Arrangements on Value-Diversion, Its Limits and Implications

The practices of corporate controllers to divert company value to themselves at the expense of (minority) shareholders and creditors (tunnelling) present a continuing challenge for lawmakers to address. While there is a variety of ways to control self-dealing in public companies, one less studied and appreciated lever against value-diversion is the role of lenders of such companies. This article examines the lending arrangements and common contractual provisions (undertakings, (non-)financial covenants, restrictions), and argues that such arrangements have considerable potential to monitor, deter and restrain value-diversion via self-dealing in the debtor companies. Likely limits to such a potential, and various important factors are also examined. The study concludes with possible implications of such findings.