The legal responses of Canada and Poland to international bankruptcy and insolvency with a focus on cross‐border insolvency law

This article discusses and compares the respective legal responses of Canada and Poland to international bankruptcy and insolvency with a focus on cross‐border insolvency law. Specifically, the issues addressed herein concern jurisdiction, recognition of foreign bankruptcy proceedings, and co‐operation with foreign courts and foreign administrators. Notwithstanding some real differences between Canadian and Polish international insolvency proceedings, both legal regimes may be compared, since both countries have adopted many of the principles contained in the UNICTRAL Model Law on Cross‐Border Insolvency. The major impetus behind the changes established by Canada in its bankruptcy and insolvency laws have been the economic realities produced by the North American Free Trade Agreement. Likewise, Poland's accession to the European Union (EU) has been a major catalyst for revising the Polish Insolvency and Restructuring Act. Part II of the said act is entirely devoted to international insolvencies. However, following Poland's adherence to the EU, those sections of the Polish Insolvency and Restructuring Act that deal with international or cross‐border insolvencies will be severely limited or constrained in scope. The article indicates that Poland, the EU and Canada are taking the necessary steps to meet the needs of debtors who would like to restructure in an international setting. Copyright © 2006 John Wiley & Sons, Ltd.     

Does pre‐packed bankruptcy create value? An empirical study of postbankruptcy employment retention in The Netherlands

In recent years, there has been growing interest in whether pre‐packed bankruptcy can be a mechanism through which firms facing imminent insolvency can preserve value. Although an extensive body of literature exists on “pre‐packs,” whether such techniques really preserve value remains ambiguous. By analysing bankruptcy proceedings filed with Dutch courts in the period 2012–2018 through the lenses of real options and debt overhang theory, we examined employment retention postbankruptcy as a consequence of the type of bankruptcy proceeding (pre‐packed bankruptcy and conventional bankruptcy) and the severity of prebankruptcy financial distress. The results show that in the Netherlands, a pre‐packed bankruptcy, when compared with a conventional bankruptcy proceeding, positively impacts employment retention rates after bankruptcy. The severity of financial distress before bankruptcy does not affect employment retention rates postbankruptcy. This implies that despite the amount of resource slack, the preservation of employee value is better served under a pre‐packed bankruptcy than a conventional bankruptcy proceeding. This finding is important for insolvency practice, as up to 22 June 2017, employee rights in the Netherlands (including redundancy) were not considered to be automatically transferred to the firm acquiring the bankrupt debtor's assets when a pre‐packed bankruptcy was applied. Implications for insolvency regulation and practice are discussed.     

Recent growth trends in developing countries

The unprecedented economic conditions of the mid-1970s have created problems with economic development for all countries of the world. Recent economic growth trends in the following main groups of developing countries are reviewed: 1) low-income countries; 2) lower middle-income countries; 3) intermediate middle-income countries; 4) upper middle-come countries; and 5) balance of payments deficit oil exporting countries. Economic indicators for each group of countries are tabulated. The tables show that the developing countries have continued domestic economic growth at only moderately slower rates during the years since 1973. They have been helped by foreign aid or private-source borrowing. As a group, they have, in fact, helped to keep the world economy from plunging deeper into recession and to prevent world trade from contracting more than it actually did already in 1974 and 1975. The performance of these developing economies during these difficult years contributes to continued optimism regarding their future prospects.     

Low‐income,low‐asset debtors in the U.S. bankruptcy system

The United States' bankruptcy system faces a major problem: many consumers are too poor to file for bankruptcy, usually because they cannot afford the necessary attorney fees. Some consumers appear to spend months trying to save the funds to pay their attorneys, thus either delaying their bankruptcies or foregoing bankruptcy altogether when they fail to save enough money. Others file for repayment bankruptcy in order to pay attorney fees during the case, when liquidation bankruptcy is usually a better fit for consumers with low incomes and low asset levels. The most recent comprehensive bankruptcy reform, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), exacerbated these problems by implementing additional procedural requirements that resulted in attorneys raising their fees. These problems have led to calls for administrative bankruptcy, especially for low‐income, low‐asset (LILA)/no‐income, no‐asset (NINA) debtors. Administrative bankruptcy would make bankruptcy more accessible by lowering access costs, for example, by eliminating the need for consumers to hire attorneys. Administrative programs in the United States, however, have a history of long‐term decline, especially when these programs serve low‐income people. It has become a cliché that poor people's programs become poor programs. A better solution would be to eliminate the procedural requirements imposed by BAPCPA and simplify the decision consumers must make about which type of bankruptcy to use.     

Challenges for a mature insolvency system in a transitional economy: Lessons from Croatia

Being a post‐communist, central‐eastern economy, Croatia and its insolvency system resembles many transitional countries in the region. In order to achieve a better perspective of the current situation, problems, and their possible solutions, a broad research of the Croatian insolvency system was carried out. Questionnaires were sent out to bankruptcy practitioners, interviews with some of the most experienced experts in the field were performed, and extensive databases have been obtained. The findings show a high level of tolerance of government institutions towards insolvency, making insolvency procedure in practice non‐compulsory even though the Corporations law (Article 626) proclaims non‐filing as punishable, with the penalties rising up to 2 years of imprisonment. As the data present, filing for bankruptcy does not necessarily have to be expected even in the case of long‐term (over 1 year) insolvency. This tolerance was present long before the recession and the global crisis of the late 2000s began. Copyright © 2010 John Wiley & Sons, Ltd.     

On Consumer Credit Outcomes in the U.S.-Mexico Border Region

The ease in mobility of people across the U.S.-Mexico border region provides a natural setting for analyzing the role of economic interdependency on consumer credit outcomes. Since the U.S. and Mexican economies are not entirely synchronized and have different growth rates, the growing Mexican border economy is likely to increase the consumption of U.S. goods and services in the region, and provide additional job opportunities to the U.S. border residents. Thus, the effect of being located at the border (‘border effect’) might reduce default and bankruptcy in the U.S. However, if both economies are nearly perfectly correlated, then the ‘border effect’ is likely to be insignificant. Our results are consistent with the border effect lowering the rate of bankruptcies and mortgage defaults in the U.S. counties that share a border with Mexico. An increase in the level of economic interdependency, as measured by the differential economic growth between Mexican municipalities and their sister U.S. county, decreases the bankruptcy rates in the U.S. border region. Overall, this research helps understand credit risk issues in the U.S.-Mexico border region.     

Hurdles to debt relief for “no income no assets” debtors in Germany: A case study of failed consumer bankruptcy law reforms

Given that many overindebted households have low or no assets and income, governments have increasingly tried to adapt their consumer bankruptcy regimes to the needs and capacities of these NINA (“no income, no assets”) debtors. Most notably, since the mid‐2000s, some countries from the Anglosphere have created low‐cost, means‐tested, and administrative (i.e., nonjudicial) debt relief procedures as alternative to traditional bankruptcy for NINA debtors. By contrast, in some European countries such as Germany, legislators have tried—but until today failed—to create efficient debt relief measures for NINA debtors. This contribution aims to make English‐speaking readers familiar with the history of consumer insolvency law in Germany, with a focus on legislative developments regarding NINA debtors, and to identify actors, institutions, and ideas that have contributed—especially during the 2000s—to the failure of consumer bankruptcy reforms addressing the main problems of NINA cases in Germany (i.e., high hurdles to relief for debtors, high administrative efforts for trustees and courts, high costs for the public purse, and yet very few payments to creditors). The German case is relevant not only because it is a striking case of failure to adapt a debt relief regime to NINA debtors but also because German consumer bankruptcy law—despite its shortcomings—continues to serve as a template for insolvency law reforms in European and other countries.     

The Chinese Approach Toward Cross‐Border Bankruptcy Proceedings: One Progressive Step Ahead

The birth of the law on enterprise bankruptcy of the People's Republic of China in 2006 was highly acclaimed. It was generally regarded as a modernized comprehensive legislative work at home and abroad. The “territorialism” approach adopted therein respecting foreign bankruptcy proceedings, however, has received floods of criticism ever since. It has left a great legal vacuum for the protection of foreign bankrupt debtor's assets in China. Foreign investors, however, may see dawn and have their confidence restored after the recent decision of the Supreme People's Court in the well‐known case of Thumb Environmental Technology Group v Sino‐Environment Technology Group, which was made on 11 June 2014. From this case on, with some limitations, the legitimate powers of foreign bankruptcy administrators might normally be ensured once foreign bankruptcy proceedings are initiated in the place of registration or place of principal business of the foreign debtor, whereby foreign administrators will be able to take effective measures to investigate, protect and dispose of the bankrupt's assets located within the Chinese territory.     

RISK MANAGEMENT FOR MIDDLE MARKET COMPANIES

This article reinforces the message of the one immediately preceding by showing that small to medium‐sized firms have even stronger (non‐tax) motives for hedging risks than their large corporate counterparts. Although middle market companies have traditionally been viewed as less sophisticated than their larger corporate counterparts in the risk management arena, the authors suggest that such companies have become increasingly receptive to new hedging strategies using derivative products. When used appropriately, such products allow companies to stabilize their periodic operating cash flow by eliminating specific sources of volatility such as fluctuations in interest rates, exchange rates, and commodity prices. Smaller companies recognize that a single swing in a budgeted cost can have a catastrophic effect on an entire budget, whereas a larger company can more easily absorb such a cost. Moreover, because the principal owners of mid‐sized firms often have a substantial part of their net worth tied up in the business, they are likely to have a far stronger interest than typical outside shareholders in using risk management to reduce the volatility of corporate profits and firm value. Perhaps most important to owners whose firms rely on debt financing, the greater cash flow stability resulting from active risk management significantly reduces the possibility of financial distress or bankruptcy. In this article, three representatives of Bank of America's risk management practice discuss three different exposures faced by middle market companies—those arising from changes in interest rates, foreign exchange rates, and commodity prices—and show how these risks can be managed with derivatives. Besides shielding companies from financial trouble, risk management is also likely to improve their access to the money and capital markets. By protecting the firm's access to capital, risk management increases the odds that the firm will not be forced to pass up good investment opportunities because of capital constraints or fear of getting into financial difficulty.     

Do Bankruptcy Codes Matter? A Study of Defaults in France,Germany, and the U.K.

Using a sample of small firms that defaulted on their bank debt in France, Germany, and the United Kingdom, we find that large differences in creditors' rights across countries lead banks to adjust their lending and reorganization practices to mitigate costly aspects of bankruptcy law. In particular, French banks respond to a creditor‐unfriendly code by requiring more collateral than lenders elsewhere, and by relying on collateral forms that minimize the statutory dilution of their claims in bankruptcy. Despite such adjustments, bank recovery rates in default remain sharply different across the three countries, reflecting very different levels of creditor protection.     

保险公司破产的国际经验与借鉴

本文结合国外保险公司破产的具体案例,综合分析了保险公司破产的原因,这些原因既有保险公司内部的原因,也有外部的竞争和经济环境因素,而这些破产的历史教训是预防保险公司破产、及时甄别出有破产风险保险公司的宝贵经验。本文还介绍了英国、美国和日本的保险监管措施,以及RBC、IR IS、FAST、动态财务分析四种偿付能力监管系统。最后总结了国外保险公司破产对我国的启示。     

The Economic Impact of Chapter 11 Bankruptcy versus Out‐of‐Court Restructuring

Companies in financial distress have usually been able to choose between working out an agreement with their creditors (“private restructuring”) or entering into more expensive and lengthier formal Chapter 11 bankruptcy proceedings. But 2015 rulings in two cases by the U.S. District Court for the Southern District of New York may force distressed firms to enter Chapter 11 rather than seek negotiated out‐of‐court settlements. Using a large sample of U.S. companies that experienced financial difficulty during the period 2006–2014, the authors found that the companies that filed for bankruptcy and went through Chapter 11 proceedings experienced significantly more job losses and reductions of economic output than companies achieving out‐of‐court restructurings, both overall and on a per‐case basis. The authors' estimates of the overall losses in output associated with Chapter 11 bankruptcy cases ranged as high as 2.3% of 2014 GDP, as compared to at most 0.3% of GDP in the case of out‐of‐court negotiations. At the same time, the authors estimate that as many as 2.2 million job losses were attributable to cases involving bankruptcies while the out‐of‐court cases were associated with the loss of at most about 300,000 jobs. But, as the authors concede, these findings are exaggerated by a clear self‐selection bias—one that stems from the well‐documented tendency of more fundamentally profitable, and hence more solvent, companies to choose private restructuring over bankruptcy. Despite this limitation, the study provides a useful point of departure for future studies that aim to quantify the costs to the U.S. economy of limiting or removing the option of companies with valuable operations but the “wrong” capital structures to work out their financial difficulties outside of the bankruptcy court.     

Economic Nationalism in Mergers and Acquisitions

This paper studies government reactions to large corporate merger attempts in the European Union during 1997 to 2006 using hand‐collected data. We document widespread economic nationalism in which the government prefers that target companies remain domestically owned rather than foreign‐owned. This preference is stronger in times and countries with strong far‐right parties and weak governments. Nationalist government reactions have both direct and indirect economic impacts on mergers. In particular, these reactions not only affect the outcome of the mergers that they target but also deter foreign companies from bidding for other companies in that country in the future.     

Innovation,diffusion, and trade: Theory and measurement

What are the sources of economic growth? This paper presents a multicountry growth model of innovation and the adoption of foreign technologies through trade. The costs of both domestic innovation and adopting foreign innovations are estimated using data on innovation, output and trade. A decomposition of the sources of growth shows that technology adoption accounts for about 65% of “embodied” growth in developing countries. Developed countries grow mainly through domestic innovation, which explains 75% of their “embodied” growth. Counterfactuals show how growth rates and levels of income would change if countries faced the same barriers to adoption and research productivity.     

Derivatives and systemic risk: Netting, collateral, and closeout

In the U.S., as in most countries with well-developed securities markets, derivative securities enjoy special protections under insolvency resolution laws. Most creditors are “stayed” from enforcing their rights while a firm is in bankruptcy. However, many derivatives contracts are exempt from these stays. Furthermore, derivatives enjoy netting and closeout, or termination, privileges which are not always available to most other creditors. The primary argument used to motivate passage of legislation granting these extraordinary protections is that derivatives markets are a major source of systemic risk in financial markets and that netting and closeout reduce this risk. To date, these assertions have not been subjected to rigorous economic scrutiny. This paper critically re-examines this hypothesis. These relationships are more complex than often perceived. We conclude that it is not clear whether netting, collateral, and/or closeout lead to reduced systemic risk, once the impact of these protections on the size and structure of the derivatives market has been taken into account.     

MACROECONOMIC ADJUSTMENT TO CAPITAL INFLOWS: LESSONS FROM RECENT LATIN AMERICAN AND EAST ASIAN EXPERIENCE

Capital inflows to some developing countries have increasedsharply in recent years. Impelled by better economic prospectsin those countries, lower international interest rates, anda slowdown of economic activity in the capital-exporting countries,the inflows have furnished financing much needed to increasethe use of existing capacity and to stimulate investment. Butcapital inflows can bring with them their own problems. Typicalmacroeconomic repercussions have been appreciation of the realexchange rate, expansion of nontradables at the expense of tradables,larger trade deficits, and, in regimes with a fixed exchangerate, higher inflation and an accumulation of foreign reserves. Should government intervene to limit some of these side effects—andif so, how? The question is especially pressing in the wakeof the Mexican crisis of December 1994. This article looks foranswers in the experience of four Latin American and five EastAsian countries between 1986 and 1993, examining the effectsof the capital inflows on the economy and comparing the differentways in which these countries responded to the problem of "toomuch" capital.      

Bubbles,growth and imperfection of credit market in a two-country model

This study extends Hirano and Yanagawa (Rev Econ Stud 84(1):406–443, 2017) to an asymmetric two-country model and examines bubbles effects on each country’s long-run economic growth rate. This study also provides numerical examples with respect to the relationship between each country’s growth rate and their financial frictions in the balanced growth equilibria with bubbles and without bubbles. It shows that foreign bubbles have positive and negative effects on both countries’ growth rates, and which effect dominates depends on the level of financial development in both countries. In this study, the positive effect of bubbles tends to dominate when the total level of financial frictions in both countries is relatively low. When the total effect of bubbles on the growth rate is positive, the burst of foreign bubbles leads to a decrease in the growth rate in both countries. This implies that there is a positive correlation between foreign bubbles and the domestic as well as the foreign country’s growth rate.     

Financial Integration, Dis‐integration and Emerging Re‐integration in the Eastern Mediterranean, c.1850 to the Present

The financial integration that concerns us is that of the linking of national banking systems through the opening of branches by banks of one country in another. In the inter‐war period, banks from England and France established branches in the countries of the eastern Mediterranean, as did banks originating in those countries. However, after World War II there came a period of nationalization and nostrification that cut the countries' banks off from each other's markets. If domestic financial systems matter to economic development and growth, and if foreign banks contribute to the development of financial systems, then these policies were a self‐inflicted wound. As barriers to foreign banks have fallen since the mid‐1970s the region has started to integrate again, but in a process that is far from complete.     

Rethinking the role of NCBs in the EMU

Five years after the introduction of unified monetary policy in the EMU, some member countries are wondering whether they have ceded too much of their policy-making powers. The fact that National Central Banks no longer carry out sizable expansionary open market or foreign exchange market operations suggests that they face substantially reduced abilities to set economic policy.This paper demonstrates that, in fact, very little power has been yielded: on the fiscal front, the force of such policy initiatives is enhanced by the fixity of the exchange rate. On the monetary front, we show that there is an observational equivalence between all Central Bank actions under fixed exchange rates. This implies that the authorities retain the same amount of policy flexibility as before. So long as they use an alternative form of policy initiative, carrying out what previously would have been characterized as sterilized foreign exchange market operations, their ability to influence the macro performance of their economy is undiminished.     

Prediction of company failure: Past,present and promising directions for the future

The quest for a reliable tool that can predict company failure has been pursued with keen interest both by academics and practitioners for a more than a century. This paper presents a survey of the key papers published on bankruptcy prediction from a critical perspective and discusses models published in the academic literature, are frequently cited and considered to have made a significant contribution to the literature on business failure. This study provides an overview of the significant models, conducts a critical discussion of these models highlighting their virtues and drawbacks. The paper concludes with the author outlining the basic concept of a "Value Erosion Model", where ‘value’ is defined as the future potential of a firm and argues that such a model can address some of the significant drawbacks associated with existing models, offering interesting avenues for future research in the development of an academically robust practically applicable bankruptcy prediction model.