The Efficiency of the Bankruptcy Process. An International Comparison

Failure of projects and firms are an inherent element of growth. Economic growth requires that old activities are phased out to make room for new ones, and that economic resources are reallocated from activities that are no longer profitable. In an economy where most firms are financed by debt to a substantial extent, insolvencies inevitably play an important role in restructuring. Insolvency leads to formal bankruptcy when legal procedures are employed to liquidate the insolvent firm’s assets in order to pay stakeholders fully or partially according to a priority established in law or contracts. In some countries legal procedures exist for restructuring as well as for liquidation. In other countries the restructuring of an insolvent firm is handled informally through negotiation. The economic roles of insolvency procedures are discussed (in Section 2) with an emphasis on dynamic aspects. In discussing the efficiency of insolvency procedures (in Section 3) we distinguish between ex ante and ex post efficiency. Since efficiency ultimately must be evaluated in terms of its dynamic effects, simple efficiency criteria are not easily identified. Formal insolvency procedures in different countries are classified (in Section 4) as more or less creditor or debtor oriented. Legal approaches can also be classified as more or less contractual or statutory. The important interdependence between formal and informal procedures is discussed in Section 5.Thereafter we turn in Section 6 to the empirical evidence on bankruptcy and restructuring in a number of countries with substantial differences in legal approaches to insolvency. We ask in Section 7 what explains the relatively high bankruptcy frequency in Sweden in an international comparison. Is the high frequency an indication of efficiency of procedures or does it indicate that viable firms are forced into bankruptcy unnecessarily?Bankruptcy; Insolvency; Restructuring; Contracting

Prudential regulation and banking supervision : building an institutional framework for Banks

Economic deregulation and financial liberalization are important for a country to develop a viable and robust financial system. But deregulation will remove the protections previously afforded the banking system. Increased competition, a changing price structure, new market entrants and other factors will increase the risks banks assume and the instability of the financial system. So, the government's goal to ensure the stability of the financial system is of paramount importance. Prudential regulation and supervision are designed to remove or lessen the threat of systemic instability. In addition, the safety and soundness of the banking system must be supported by an adequate legal framework governing a bank's contractual relationship with its customers. Satisfactory accounting and auditing standards are also crucial to ensure that financial statements reflect each financial institution's condition. Different countries have adopted different models of bank regulation and supervision. Organizational approaches also vary from country to country. However, no model will be effective if significant political interference is permitted. The primary line of defense against banking insolvency and financial system distress is the quality of management within the banks themselves. Therefore, efforts to strengthen the financial system must also focus on strengthening management through a process of institutional development.Banks&Banking Reform,Financial Intermediation,Financial Crisis Management&Restructuring,Banking Law,Environmental Economics&Policies

The marriage of Bourdieu and private ordering on Gretna's football field

This paper presents an in-depth study of the insolvency of Gretna football club. It sets the insolvency within the wider context of the field of football in Scotland and the special rules of the field which apply immediately upon the insolvency of a club and which are arguably at odds with general insolvency regulation in the UK. Insolvency presents a unique opportunity to study fields since it is at this point when there is a shortfall of funds that the field's power relations become most clear and the struggles on the field more visible. In order to provide a more nuanced complex picture of the football field, its actors and regulations, especially those relating to insolvency, this paper draws upon the work of Pierre Bourdieu. It also draws upon the concept of private ordering since the insolvency rules set by the governing body of the Scottish Premier League (a private company) have an impact that extend beyond the members of the League

Personal Bankruptcy: Model structures and the fresh start

Though it seems as if personal bankruptcy regulation was a new legislative solution of the last decades, handling personal bankruptcies has a long history and broad legislative background. The need for implementing a modern regulatory framework for handling personal bankruptcies goes back to the second part of the 20th century, when personal, consumer lending reached a massive volume, and non-performing defaulted portfolios resulted in serious macroeconomic, social, and political impact. Many countries have introduced measures to handle defaulted personal loans, and personal bankruptcy regulations were launched in most European countries during the last 30 years. Though structures are different, the general elements of such systems could be outlined. One of the most disputed principles of the systems is the handling of “fresh start” and the implicated degree of the “leniency” of the systems. In this working paper, I present the brief history, the structural elements of personal bankruptcy regulations, and the building blocks of the fresh start. I also discuss three different legislative solutions: the US, the Austrian, and the Hungarian model. I conclude that there are continuous changes in the systems regarding the handling of fresh start. While the US legislation moves to the less lenient direction, there are measures from European countries to change the laws to more debtor-friendly systems. The Hungarian version was created to follow the strict, less lenient structures in a time when some countries in the region moved towards more lenient systems

The Polish deposit insurance scheme compared to arrangements adopted in other EU countries

Despite their relatively short history, deposit insurance schemes (DISs) are currently a common element of the banking system. In 2004, 83 explicite DISs operated around the world. The Bank Guarantee Fund (Bankowy Fundusz Gwarancyjny – BFG) – the Polish institution guaranteeing household deposits – is celebrating its 10th anniversary this year. Over its 10 years of active operation the BFG has proved that, along with the National Bank of Poland and the Commission for Banking Supervision, it is among the most important institutions protecting the Polish financial system from destabilisation. The introductory part of this paper presents the position of the Bank Guarantee Fund within the Polish financial safety net. Other guarantee schemes operating in the Polish financial services sector have also been presented. Moreover, the paper explains the reasons for the launching of a DIS and points out the purposes for the establishment of the BFG. Further, it describes the evolution of Polish deposit guarantee arrangements since 1982. Special emphasis has also been put on the analysis of Bank Guarantee Fund administration. The main aim of this paper is to describe Polish deposit insurance scheme. Particular features of the Polish scheme are discussed with reference to the Community regulations in this field and also arrangements adopted in the remaining 24 countries of the European Union. The third chapter of this paper describes the fundamental area of the Fund’s activity, i.e. guarantee activities consisting in making compensation payouts to depositors in the event of a bank’s bankruptcy. The scope of coverage (eligible types of deposits and depositors) offered by the Polish scheme has been analysed. The scope of the BFG’s guarantee activities from 1995 to 2004 has also been presented. In the fourth chapter, the BFG’s activities aimed at minimising risk in the banking sector have been presented. The principles and experience of the Fund regarding financial support for the rehabilitation of banks threatened with insolvency have been discussed in greatest detail here. The fifth chapter describes the principles and procedures regarding the financing of guarantee and assistance activities of the Bank Guarantee Fund. In the summary, the paper indicates possible directions for changes in the BFG legislation. It has been pointed out that despite the fact that Polish regulations comply with EU requirements,they must be adjusted to suit the changing domestic conditions.deposit insurance scheme, bank failure, assistance activities, Polish banking sector, financial stability, financial safety net, central bank, banking supervision, Community regulations

Beyond Carve-Outs and Toward Reliance: A Normative Framework for Cross-Border Insolvency Choice of Law

Choice of law in cross-border insolvency is gaining increased attention, not just by lowly academics but by policymakers who actually matter. I argue it is time to bring some normative guidance to the burgeoning reform efforts. At the highest level of theoretical purity, universalism seems to have (rightly) captured the biggest following. But it has been scaled back by what I call “second-order” considerations of pragmatics to its lesser, modified form. I take that retrenchment as necessary and note how it has been deployed through a carveout-based regime of subject-specific exceptions from lex fori concursus. Given that lay of the land, I suggest a “third-order” normative framework for moving beyond discrete subject matter carveouts and instead propose a reorientation toward a normative principle to justify the necessary carveouts of modified universalism: actual, defensive litigant reliance should be what warrants departure from COMI insolvency law. I contend that this new framework will serve a desirable cabining effect on territorialism by reserving the application of non-COMI law for circumstances when it is truly “required.

Beyond Carve-Outs and Toward Reliance: A Normative Framework for Cross-Border Insolvency Choice of Law

The title of this Article purports to develop a normative framework for cross-border insolvency choice of law. That can be a task of varying scope, so at the outset any pretense of ambition for a wholly new choice of law model should be dispelled. Indeed, at the most generalized level, bankruptcy choice of law theory has already been fully ventilated in the well-rehearsed universalism versus territorialism debates. And it has been settled. The universalists, at least as a normative matter, appear to have won: choice of law, as it is increasingly accepted, should be determined by the debtor\u27s center of main interests (COMI). But no sooner did the universalists claim theoretical superiority than did they bow to concessions animated by such pragmatic concerns as reality, begetting the now dominant paradigm of modified universalism. One could argue this raises a nomenclature question: is modified universalism an independent normative theory for choice of insolvency law in cross-border proceedings or is it merely a pragmatic gloss put on the universalist theory, which retains the normative theoretical core? For purposes of this Article, I prefer to cast modified universalism as its own normative theory. Modified universalism is more specifically a second-order choice of law theory. It argues that the theoretical purity of universalism is desirable as a first-order matter, but because that purity is not yet attainable and because incremental advancement toward universalism is preferable to failed swings for the fences, a second-order approach is warranted. This second-order theory is mindful of pragmatic constraints and counsels that it is normatively desirable to modify universalism with some territorialist concessions. Thus, non-trivial accommodation of local law not only can but also should be tolerated in cross-border insolvency proceedings

Doing Business in Canada

[Excerpt] Foreign investment in Canada is regulated by the Investment Canada Act (“ICA”), which came into force 30 June 1985. Generally speaking, the ICA monitors the establishment of new businesses and the acquisition of existing Canadian businesses by non-Canadians. Whether an entity is non-Canadian is determined by the nationality of the individual who ultimately beneficially owns or controls the entity. Every non-Canadian who is a citizen or resident of a country that is a member of the World Trade Organization (a “WTO Investor”) is given special status under the ICA for most transactions. In addition to the ICA, other federal statutes regulate and restrict foreign investment in specialized industries in sectors such as telecommunications, broadcasting and financial industries