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The Challenges of Bankruptcy Reform

Cirmizi, Elena; Klapper, Leora; Uttamchandani, Mahesh
Fonte: Banco Mundial Publicador: Banco Mundial
Português
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46.86%
The 2008 financial crisis was followed by a global economic downturn, credit crunch, and reduction in cross-border lending, trade finance, remittances, and foreign direct investment, which adversely affected businesses around the world. The consequent increase in the number of firm insolvencies in the financial and corporate sectors highlights the importance of efficient bankruptcy laws. This paper summarizes the theoretical and empirical literature on bankruptcy design, discusses the challenges of introducing and implementing bankruptcy reforms, and presents examples of how policymakers are trying to use the current economic downturn as an opportunity to engage in meaningful reform of the bankruptcy process.

Saving Viable Businesses : The Effect of Insolvency Reform

Klapper, Leora
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Português
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36.58%
The 2008 financial crisis and consequent rise in corporate insolvencies highlight the clear need for efficient bankruptcy systems to liquidate unviable firms and reorganize viable ones and to do so in a way that maximizes the proceeds for creditors, shareholders, employees, and other stakeholders. This note summarizes the empirical literature on the effect of insolvency reforms on economic and financial activity. Overall, research suggests that effective reforms increase timely repayments, reduce the cost of credit, and lower the rate of liquidation among distressed firms.

Corporate Debt Restructuring-A Proposal for East Asia : Auctions Speak Louder than Words

Hausch, Donald B.; Ramachandran, S.
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Português
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46.56%
Auctions may be an appropriate way to reorganize the liabilities of some overindebted East Asian firms - those that are generally well run, for which there is merit in keeping the existing owners in place, but for which conventional bankruptcy procedures are proving too slow. This Note proposes an auction scheme dubbed Accord - for Auction-based Creditor Ordering by Reducing Debts. Firms pay creditors in sequence as their operating cash flows permit rather than on a promised schedule. Creditors bid for position in the queue by the proportion of debt they forgive, choosing between smaller or more deferred repayments. The outcome: a firm with serviceable debt, controlled by existing owners with an incentive to operate it efficiently.

Innovations in Bankruptcy—Pricing the Priority of Insolvency Claims

Leechor, Chad
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Português
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46.52%
Following the wave of recent financial turmoil, many developing countries have learned the value of an effective bankruptcy system in deterring excessive use of debt and providing an orderly way to resolve a debt crisis. As a result, they are now reforming their bankruptcy systems, generally modeling them on those of advanced countries. But there is dissatisfaction with bankruptcy frameworks in advanced countries too. Some alternatives have been proposed. One is an options-based approach that provides an objective way of pricing creditor claims according to priority. With allowances for local conditions, this approach offers developing countries a chance to leapfrog existing bankruptcy practices and their limitations. Effective bankruptcy systems have implications for corporate governance and for securities markets. For corporate managers and controlling shareholders, the cost of bankruptcy includes the loss of corporate control and the risk of personal liability. This threat serves as a restraint on the use of debt. In the event of default an efficient and orderly transfer of corporate control to creditors reduces the likelihood of asset stripping and looting by insiders. For creditors...

Lithuania : Banking System Assessment

World Bank
Fonte: Washington, DC Publicador: Washington, DC
Português
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36.69%
The Bank of Lithuania (BoL), the Central Bank, was established in 1990. BoL has the exclusive right to grant and revoke licenses to local and foreign banks and to supervise their activities. Private commercial banking boomed from 1991 to 1994 while bank regulation was lax. In late 1995, a bank crisis caused failures of most of the Lithuanian banks, and the remaining banks resulted in better managed and supervised institutions. BoL also applied tougher regulation on the banking sector. All commercial banks now need to have their financial records audited every year by an international auditing firm. This report includes the following headings: risks and contingency crisis management in the Lithuanian banking system; credit risk and regulatory issues; and description of corporate debt restructuring procedures in Lithuania.

Resolution of Financial Distress : An International Perspective on the Design of Bankruptcy Laws

Claesens, Stijn; Djankov, Simeon; Mody, Ashoka
Fonte: Washington, DC: World Bank Publicador: Washington, DC: World Bank
Português
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56.67%
The institutions of bankruptcy have been at the center of the great economic events of the last decade, ranging from the Asian economic crisis, to the transition from socialism to capitalism. Our understanding of the economic, and legal structure of these institutions, as well as of their impact on economic development, has advanced considerably during this period as well. This study provides valuable information on the advances for resolution of financial distress, through theoretical studies, historical data, and evidence from recent worldwide experiences. It illustrates the possibilities, and methods of beneficial legal reform of bankruptcy procedures, as well as the pitfalls of misguided political action. The study is a timely, and valuable resource for economists, lawyers, and all others interested in institutional reform in emerging financial markets.

The Challenges of Bankruptcy Reform

Cirmizi, Elena; Klapper, Leora; Uttamchandani, Mahesh
Fonte: Published by Oxford University Press on behalf of the World Bank Publicador: Published by Oxford University Press on behalf of the World Bank
Tipo: Artigo de Revista Científica
Português
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56.68%
The 2008 financial crisis was followed by a global economic downturn, a credit crunch, and a reduction in cross-border lending, trade finance, and foreign direct investment, which adversely affected businesses around the world. The consequent increase in the number of firm insolvencies in the corporate sector highlights the need for commercial bankruptcy laws to liquidate efficiently unviable firms and reorganize viable ones, so as to maximize the total value of proceeds received by creditors, shareholders, employees, and other stakeholders. The authors summarize the theoretical and empirical literature on bankruptcy design, discuss the challenges of introducing and implementing bankruptcy reforms, and present examples of how policymakers are trying to take advantage of the current economic downturn as an opportunity to engage in meaningful reform of the bankruptcy process. They also review the main principles of efficient insolvency laws and bankruptcy procedures.

Strengthening Subnational Debt Financing and Managing Risks

Liu, Lili
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Português
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36.53%
The Chinese budget law prevents subnational governments from borrowing. However, Subnational Governments (SNG) borrows indirectly off-budget, through Urban Development and Investment Corporations (UDIC). There are various estimates on the off-budget liabilities, with one estimate having the liabilities at more than 30 percent of Gross Domestic Product (GDP). This paper provides a discussion of more reform options for China, anchored with cross-country experiences and lessons. The way forward is to develop regulatory frameworks that can expand SNG and UDIC market access and debt financing, while strengthening subnational fiscal discipline, managing default risks, promoting capital market development, and supporting macroeconomic management and a stable financial system. The paper is organized as: section two presents fiscal rules and framework - ex ante regulations for subnational debt issuing and procedures. Section three discusses what to do when a subnational government becomes insolvent - ex post system. Section four is devoted to developing regulatory frameworks for UDIC...

Implicaciones financieras de la legislación concursal : una comparativa europea; Financial consequences of the bankruptcy law : European comparison

López Gutiérrez, Carlos; García Olalla, Myriam; Torre Olmo, María Begoña
Fonte: Asociación Española de Profesores Universitarios de Contabilidad Publicador: Asociación Española de Profesores Universitarios de Contabilidad
Tipo: info:eu-repo/semantics/article; publishedVersion
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RESUMEN. El análisis de la reacción de los títulos de las empresas ante declaraciones legales de insolvencia ha sido desarrollado ampliamente en la literatura financiera. En este trabajo se adopta un enfoque diferente al tradicional estudio de eventos, tratando de contrastar si la reacción de los mercados viene condicionada por la orientación de la legislación concursal que regula las situaciones de insolvencia empresarial. Para ello se realiza un análisis con una muestra que incluye empresas con problemas de insolvencia en Alemania, España, Francia y el Reino Unido entre 1990 y 2002. Los resultados permiten concluir que la valoración de los títulos de las empresas se ve condicionada por el tipo de legislación concursal. Además, se contrasta cómo las empresas bajo sistemas más orientados hacia la protección de los acreedores (Reino Unido y Alemania antes de la reforma de 1994) presentan rentabilidades negativas mayores, debido a la transferencia de riqueza que se produce desde los accionistas hacia los aportantes de fondos ajenos a la empresa.; ABSTRACT. The reaction of equity returns before bankruptcy filings has been developed widely in financial literature. Traditionally, event study methodology has been used in this kind of studies despite its limitations. Therefore...

Are there alternatives to bankruptcy? : a study of small business distress in Spain

García-Posada, Miguel; Mora Sanguinetti, Juan Sebastián
Fonte: Springer Publicador: Springer
Tipo: info:eu-repo/semantics/publishedVersion; info:eu-repo/semantics/article
Publicado em /08/2014 Português
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46.65%
Small businesses, the majority of Spanish firms, rarely file for formal bankruptcy when dealing with financial distress. This is why business bankruptcy rates in Spain are among the lowest in the world, even during the current economic crisis. To explain this fact we present the following hypothesis. Filing for bankruptcy in Spain is very costly for both small firms and their creditors. Due to this, the capital structure of micro firms is biased towards mortgage loans, as it allows them to avoid bankruptcy by carrying out debt enforcement via mortgage foreclosures, which are cheaper procedures than bankruptcy, in case of financial distress. The empirical tests of our hypothesis consist of comparing the observed choices (choice of capital structure, choice between bankruptcy and mortgage) of Spanish firms with those of firms from countries (France and the UK) where their bankruptcy systems are more efficient and their laws do not incentivise them to bias their capital structure towards mortgage loans. Our findings corroborate the proposed hypothesis. As bankruptcy procedures and mortgage foreclosures are not perfect substitutes—i.e., they do not suit well the same type of firms- the underutilization of one of them—reflected in low bankruptcy rates- may lead to efficiency losses

Is the different treatment of corporate insolvency and personal bankruptcy under Australian law justified?

Brownbill, Conan
Fonte: Universidade Nacional da Austrália Publicador: Universidade Nacional da Austrália
Tipo: Relatório
Português
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46.86%
The Australian corporate insolvency and personal bankruptcy regimes are separate. In recent ears, it has been suggested the two procedures should be merged. Those favouring merger believe it would increase efficiencies, reduce existing overlap and lessen costs. The benefits of a single insolvency regulator are noted as one particular benefit of merged insolvency legislation. Such arguments in support of merger underestimate the difficulties associated with unification given the tradition of separate insolvency laws within Australia and the terms of the Constitution. Significant costs would be associated with merging insolvency and bankruptcy legislation and the reduction of two governmental insolvency regulators to one. The Commonwealth may be unable o enact merged insolvency legislation that included all existing insolvency provisions given limitations within the Constitution. These limitations do not appear to have been addressed by those arguing in favour of merged insolvency procedures. The corporate insolvency and personal bankruptcy procedures have similar objectives and procedures. Both provide for the appointment of an independent entity to ascertain the debtor's abilities, realise their assets and distribute the proceeds among creditors. Further...

How to Accelerate Corporate and Financial Sector Restructuring in East Asia

Claessens, Stijn; Djankov, Simeon; Klingebiel, Daniela
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Viewpoint; Publications & Research
Português
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46.41%
Resolving systemic banking and corporate distress is not easy. The large scale of the East Asian financial crisis has made the task even more daunting in Indonesia, the Republic of Korea, Malaysia, and Thailand. Two years into the process, bank and corporate restructuring is still a work in progress. Governments should act to accelerate it. Besides adopting common policy prescriptions - improving financial regulation, corporate governance, and bankruptcy procedures and shoring up banks' capital positions - governments could take three additional steps: Set up competitive, privately managed specialized funds, to hold nonperforming loans and depoliticize restructuring. Allow auctions as an alternative to negotiations, to speed debt restructuring. And allow employee ownership participation schemes, to reduce workers' resistance to changes in ownership.

Bankruptcy Around the World: Explanations of its Relative Use

Claessens, Stijn; Klapper, Leora F.
Fonte: World Bank, Washington, D.C. Publicador: World Bank, Washington, D.C.
Tipo: Publications & Research :: Policy Research Working Paper; Publications & Research
Português
Relevância na Pesquisa
46.53%
The recent literature on law and finance has drawn attention to the importance of creditor rights in influencing the development of financial systems and in affecting firm corporate governance and financing patterns. Recent financial crises have also highlighted the importance of insolvency systems to resolve corporate sector financial distress. The literature and crises have emphasized the complex role of creditor rights, affecting not only the efficiency of ex-post resolution of distressed corporations, but also influencing ex-ante risk-taking incentives and an economy's degree of entrepreneurship more generally. The authors document how often bankruptcy is actually being used for a panel of 35 countries. Next they investigate the effects of specific design features of insolvency regimes in relation to the quality of the countries' overall judicial systems on the use of bankruptcy. The authors find, correcting for overall financial development and macroeconomic shocks, that bankruptcies are higher in Anglo-Saxon countries and in market-oriented financial systems characterized by weaker and multiple banking relationships. They also find that greater judicial efficiency is associated with more use of bankruptcy...

Modernizing Italy's Bankruptcy Law

Vietti, Michele
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Brief; Publications & Research
Português
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46.76%
Reforming bankruptcy laws is difficult for many reasons. First of all, attitudes in Italy toward bankruptcy make it a difficult subject to generate support for. Secondly, bankruptcy reforms are complex and lengthy. They require changes not only to the bankruptcy law but also to other important parts of the legal framework, such as the codes of civil procedures and, in the case of Italy, the penal code. Finally, they require support from those that must implement them. This paper outlines the author experience in leading the commission for the reform of the bankruptcy law and the lessons learned from it.

Bankruptcy Reform-Breaking the Court Logjam in Colombia

Atiyas, Izak
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Viewpoint; Publications & Research
Português
Relevância na Pesquisa
46.63%
Many developing countries suffer from logjam in the courts, a condition that tends to reduce the effectiveness of bankruptcy law in relieving financial distress. Colombia's bankruptcy reform provides some useful lessons for these countries. In particular, it shows that when traditional court procedures are hard to change, an alternative is to legally empower another entity to handle the entire process. The author explains how it was done in Colombia.

Systemic Financial Distress and Auction-Based Bankruptcy Reorganization; International Review of Economics and Finance

Hausch, Donald B.; Ramachandran, S.
Fonte: Banco Mundial Publicador: Banco Mundial
Tipo: Journal Article; Journal Article
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Most bankruptcy procedures try to reorganize a financially-distressed firm's debts to a serviceable level through negotiations overseen by courts. Markets are an alternative to such negotiations. This paper develops a market-based approach that is appropriate if claimants are severely cash-constrained and there is merit in having existing owners-managers remain in control. This approach was developed in response to the 1997 Asian Crisis, where the sheer numbers of over-indebted firms, creditors with poor incentives, and inexperienced courts stymied negotiated resolution. The scheme, however, can be applied to other crisis settings that exhibit particular characteristics. One such setting could be the resolution of external sovereign debts, a situation where creditors obviously cannot take possession of a country. The scheme arranges creditors in a queue to be serviced in sequence from the firm's operating cash flows. Creditors bid for their position in this queue, and those accepting a greater proportionate reduction in the face value of their claims are placed ahead of the others. Any existing hierarchy of claims is honored by having claimants bid for their positions within the relevant segment of the queue. No one in the queue (including owners who are last) is paid anything until the (reduced) debts of the first in line are fully discharged using the firm's operating cash surpluses. The queue then moves up and the next claimant in line is serviced. The paper shows that...

Subnational Insolvency : Cross-Country Experiences and Lessons

Liu, Lili; Waibel, Michael
Fonte: Banco Mundial Publicador: Banco Mundial
Tipo: Publications & Research :: Policy Research Working Paper; Publications & Research
Português
Relevância na Pesquisa
36.89%
Subnational insolvency is a reoccurring event in development, as demonstrated by historical and modern episodes of subnational defaults in both developed and developing countries. Insolvency procedures become more important as countries decentralize expenditure, taxation, and borrowing, and broaden subnational credit markets. As the first cross-country survey of procedures to resolve subnational financial distress, this paper has particular relevance for decentralizing countries. The authors explain central features and variations of subnational insolvency mechanisms across countries. They identify judicial, administrative, and hybrid procedures, and show how entry point and political factors drive their design. Like private insolvency law, subnational insolvency procedures predictably allocate default risk, while providing breathing space for orderly debt restructuring and fiscal adjustment. Policymakers' desire to mitigate the tension between creditor rights and the need to maintain essential public services...

Using a Bayesian model for bankruptcy prediction : a comparative approach

He, Zhanpeng
Fonte: Brock University Publicador: Brock University
Português
Relevância na Pesquisa
36.66%
The purpose of this study is to examine the impact of the choice of cut-off points, sampling procedures, and the business cycle on the accuracy of bankruptcy prediction models. Misclassification can result in erroneous predictions leading to prohibitive costs to firms, investors and the economy. To test the impact of the choice of cut-off points and sampling procedures, three bankruptcy prediction models are assessed- Bayesian, Hazard and Mixed Logit. A salient feature of the study is that the analysis includes both parametric and nonparametric bankruptcy prediction models. A sample of firms from Lynn M. LoPucki Bankruptcy Research Database in the U. S. was used to evaluate the relative performance of the three models. The choice of a cut-off point and sampling procedures were found to affect the rankings of the various models. In general, the results indicate that the empirical cut-off point estimated from the training sample resulted in the lowest misclassification costs for all three models. Although the Hazard and Mixed Logit models resulted in lower costs of misclassification in the randomly selected samples, the Mixed Logit model did not perform as well across varying business-cycles. In general, the Hazard model has the highest predictive power. However...

La faillite internationale: droit comparé, le système canadien et le système européen

Carré, Dobah
Fonte: Université de Montréal Publicador: Université de Montréal
Tipo: Thèse ou Mémoire numérique / Electronic Thesis or Dissertation
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36.89%
La faillite internationale est une matière complexe qui a donné lieu à un long et vif débat doctrinal entre les tenants des systèmes de la territorialité et de l'universalité. Une faillite est internationale lorsqu'elle met en présence un débiteur possédant des biens ou des créanciers dans plus d'un pays. Puisque la matière de faillite est souvent très différente d'un pays à l'autre, l'application du système de la pluralité, retenue dans la plupart des pays, soulève plusieurs problèmes particulièrement en ce qui concerne la coordination entre les diverses faillites et le manque de protection des créanciers, notamment parce qu'elle accorde des effets limités à la reconnaissance des procédures de faillite étrangères. En effet, en présence de procédures de faillite concurrentes il s'agit de répondre aux questions suivantes: quelle est la juridiction compétente pour ouvrir et organiser la faillite? Quelle est la loi applicable? Dans quels États cette faillite va-t-elle produire des effets? Dans le présent mémoire, il s'agit d'établir une comparaison entre le système canadien et le système européen en matière de faillite internationale. Le législateur canadien a récemment envisagé de modifier sa législation sur la faillite pour permettre une meilleure coopération internationale en matière de faillite internationale. Le projet canadien C-55 reprend pour l'essentiel les dispositions contenues dans la loi-type de la commission des Nations-Unis pour le droit commercial international (CNUDCI) sur «l'insolvabilité internationale». Ainsi...

Co-ordination failure, moral hazard and sovereign bankruptcy procedures

Miller, Marcus
Fonte: Escola de Pós-Graduação em Economia da FGV Publicador: Escola de Pós-Graduação em Economia da FGV
Tipo: Trabalho em Andamento
Português
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46.29%
We study a model of sovereign debt crisis that combines problems of creditor coordination and debtor moral hazard. Solving the sovereign debtor's incentives leads to excessive 'rollover failure' by creditors when sovereign default occurs. We discuss how the incidence of crises might be reduced by international sovereign bankruptcy procedures and relate this to the current debate on revising international financial architecture. Paper prepared for Bank of England Conference on "The Role of the Official and Private Sectors in Resolving International Financial Crises", London, and for the Latin American Meeting of the Econometric Society, Sao Paolo, Brazil. (Preliminary draft circulated for comments, please do not cite without reference to the authors.)