Abstract:
1. Introduction
The research identifies a major problem in Sri Lanka’s insolvency
framework, which, heavily influenced by British colonial law, remains
predominantly creditor centric and is governed by the Company Act No.7
of 2007. Therefore, this research examines the comparative legal
frameworks governing corporate insolvency in Sri Lanka and the UK,
focusing on balancing the rights of commercial creditors and debtors.
2. Research Methodology
The study employs a black-letter approach, comparative analysis, and
qualitative research methodology to explore the effectiveness of these laws
and their impact on economic stability, business continuity, and financial
fairness, utilizing both primary sources, such as statutes and case laws,
alongside secondary sources, like scholarly articles and institutional
reports.
3. Findings and Discussion
The findings indicate that Sri Lanka’s creditor-prioritized insolvency
lawhinders business continuity and economic growth. Mechanisms like
fraudulent preference and Paulian actions in Sri Lanka primarily protect
creditors but do not provide the same balance of debtor rights seen in the
UK’s legal framework. In contrast, the UK’s insolvency laws include
mechanisms such as administration, designed to rescue businesses, and
Company Voluntary Arrangements (CVAs), which facilitate negotiated
settlements between creditors and debtors. The absence of mechanisms
like the UK’s administration process results in limited options for
distressed businesses, leading to premature closure.
4. Conclusion and Implications
Drawing on the UK’s legal framework as a model, this study recommends
that Sri Lanka introduce mechanisms for debtor rehabilitation and adopt
reforms that promote a fairer balance between creditor and debtor rights,
thereby fostering economic stability and business resilience.
