Insolvency Assessment

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Chile : Insolvency and Creditor Rights Systems
(Washington DC, 2004-06) World Bank
The legal and institutional framework governing creditor rights and insolvency proceedings in Chile reasonably complies with expectations of a modern, credit-based economy, although some shortcomings affect the full effectiveness of credit risk management and resolution: Financial institutions over-rely on real estate as collateral. Pledges are not enough developed because legislation on secured interests over movable assets is fragmented and the publicity and registration mechanism for pledges are not sufficiently reliable. Individual enforcement proceedings are lengthy and complicated, both for secured and unsecured creditors. Enforcement proceedings using executory instruments take 1 to 3 years, whereas creditors not enjoying such instruments use ordinary proceedings whose duration is even longer (3 to 5 years). Insolvency legislation is integrated into the country's broader legal and commercial system, providing a liquidation proceeding whose average duration, however, is 2 to 3 years. The Insolvency Law also governs judicial reorganization proceedings but classification of creditors for voting is not allowed, which may be a relatively significant rigidity in an environment where most financial credit is secured. Treatment of contractual obligations in insolvency is not sufficiently developed in the Insolvency Law, which also lacks clear provisions on how to deal with subordination debt agreements and financial contracts in bankruptcy. Provisions to deal with insolvency cases of a cross-border nature are fairly antiquated and not responsive to solve main problems typically present in those cases. Corporate workouts would be significantly increased if out-of-court plans approved by a majority of creditors were able to be converted into prepackaged restructuring plans that bind dissenting minorities. The judicial framework for commercial enforcement and insolvency proceedings is generally perceived as being independent and reliable, although most courts deal with an excessive number of processes. Notwithstanding, there are no commercial courts nor courts specializing in insolvency in Chile. Insolvency administrators are independent professionals supervised by the Bankruptcy Commission, a body meeting the requirements of an independent regulatory institution. The Bill on Second Capital Market Reform, submitted to Congress, is a relevant step in the right direction to make Chilean creditor rights and the insolvency system more effective.
Mauritius : Insolvency and Creditor Rights Systems
(Washington DC, 2004-03) World Bank
The Bank assessed the Mauritius insolvency and creditor rights systems pursuant to a joint IMF-World Bank initiative to develop reports on the observance of standards and codes ("ROSC"), based on the Bank Principles and Guidelines for Effective Insolvency and Creditor Rights Systems during 2002. The assessment team interviewed a cross section of country stakeholders regarding the effectiveness of the legal infrastructure, and its implementation supporting debtor-creditor relationships, corporate insolvency and credit risk management and resolution practices. Conclusions in this assessment are based largely on a review of applicable legislation and information gathered through interviews conducted by the staff team, and other inputs provided by the Steering Committee on Insolvency and Creditor Rights set up by the Government of Mauritius in January 2003. In addition, five commercial banks provided responses pertaining to credit risk management and corporate recovery practices with respect to distressed assets. Policy recommendations include: creditors rights and enforcement areas, some fine tuning is required to broaden the use of security interests on movable and immovable property, and to ascertain the maximization of the value of the assets for sale upon seizure; enforcement procedures should be streamlined further by accelerated debt recovery rules and more efficient procedures for execution, enforcement and auctions; Credit Information Bureau should be established in Mauritius, and, the government should encourage the development of Credit Rating Agencies. On the legal framework for corporate insolvency, a global reform of the insolvency procedures should be pursued in order to provide Mauritius with a modern and efficient commercial insolvency law. It is also recommends the necessary amendments to the Bankruptcy Act and Bankruptcy Rules to take care of both traders, non-traders and companies insolvencies, and, the harmonious and uniform recovery procedures for all debts, including amounts due to the State.
Slovak Republic : Insolvency and Creditor Rights Systems
(Washington, DC, 2002-06) World Bank
The assessment team interviewed a cross section of country stakeholders regarding the effectiveness of the legal infrastructure, and its implementation supporting debtor-creditor relationships, corporate insolvency and credit risk management, and resolution practices, including among others, members of the Inter-Agency Commission for the preparation of a new insolvency law, and members of the drafting team for the new collateral law; and, various professionals serving as trustees, executors, lawyers and accountants also provided their input. The conclusions in this assessment are based largely on the above interviews, a review of applicable legislation, data and information, various reports prepared by the Bank between 1999-2001, and other reports or analyses pertaining to the areas assessed, including the project on the new collateral legislation, and registration system for pledges (charges). Some laws unavailable in English at the time were discussed in a number of meetings with institutions, and professionals in the public, and private sectors, and, translations have been requested for follow-up. In addition, at least three commercial banks provided responses to a questionnaire pertaining to credit risk management, and corporate recovery practices with respect to distressed assets. Policy recommendations on Creditors' rights and enforcement procedures need development as follows: rules or legislation on sufficiency of security/transfer/ownership documents should be promulgated to remove the discretion of the land registry, and prevent delay of transactions due to refusals of district land registry offices to register documents; auction procedures should be refined to allow for more realistic minimum bids, more transparent and corruption-resistant procedures, and less court involvement; debtor mechanisms for delaying enforcement of their creditors' rights should be reduced, and in many cases eliminated. Debtor's rights can be protected through summary proceedings, in a different forum dedicated to routine debt enforcement; and, enforcement of first, but not final judgments should be allowed subject to posting of appropriate bond. In addition; the Bankruptcy Law should be further amended to include mandatory deadlines, with time-bound procedures, to avoid the decimation of asset value over time. The moratorium on creditor action should be effective from the time of filing the petition, and the stay on secured creditors counter-balanced by safeguards to protect, and preserve the value of a separate creditors' interest in collateral from deteriorating in value. Creditors' committee meetings should be convened within 30 days of petition filing, and creditors' powers to supervise dealings of the trustee, should be better.
Argentina : Insolvency and Creditor Rights Systems
(Washington, DC, 2002-06-01) World Bank
In 1995, Argentina enacted a new modern insolvency law that substantially improved corporate liquidations and rehabilitations. After almost seven years of experience, some legal and institutional weaknesses persist: (1) corporate workouts are difficult in practice; (2) the unified insolvency regime causes severe problems in judicial interpretation of many legal provisions, causing court congestion with insolvency cases; (3) an uneven playing field discourages rehabilitation; (4) a lack of insolvency specialization among judges impedes efficiency and uniformity in large commercial centers; and (5) sindicos are perceived as lacking objectivity and sufficient expertise to manage complex restructurings. Liquidation proceedings take 1-5 years (depending on complexity), while reorganizations average 1½-2 years in jurisdictions with specialized judges (Mendoza, Cordoba) and 2-3 years in the others. To immediately improve the system, a new workout mechanism should be introduced to deal with systemic levels of corporate distress. In the medium term, other aspects of the legal and institutional framework should be improved.
Lithuania : Insolvency and Creditor Rights Systems
(Washington, DC, 2002-02) World Bank
The legal environment in Lithuania to support creditor rights and debt enforcement is reasonably effective, and collateral regimes have been largely centralized and modernized. Consistent with a modern system, security interests may be granted in immoveable and moveable assets, including equipment, inventory, goods, receivables, and future property. In practice, security tends to be restricted to more reliable and liquid assets, such as immovables or fixed assets. Markets for moveable assets remain poorly developed or illiquid. Appeals remain a source of delay, and other procedures could be improved. The insolvency process in Lithuania has been almost exclusively one of liquidation, plagued by delay and procedural obstacles. A new insolvency law was adopted in July 2001, bringing to three the number of insolvency laws currently in effect. At the same time, a new Enterprise Restructuring Law became effective. As of November 2001, only a few cases had been filed under the new law, which a growing consensus of stakeholders consider to be unworkable and unfavorable to creditors. The process may be aided by the developing training guides and programs. Regulation of insolvency remains fragmented and weak, but shows evidence of an evolving structure. Court efficiency is stifled by a lack of specialization among judges, who are overloaded and poorly equipped to deal with bankruptcy cases, especially rehabilitations. The administrators' profession is marked by low standards, over-licensing, inadequate training and skills, and inconsistent performance. While much remains to be done, the national association of bankruptcy administrators is working to improve licensing standards and to strengthen continuing education and training for its members.