Hungary's Bankruptcy Experience, 1992-93

Policymakers working on enterprise restructuring should takea close look at Hungary's experience with bankruptcy reformsince 1992. This article provides detailed data on a randomlyselected stratified sample of actual cases filed in the firsttwo years after the enactment of the law. These data are supplementedwith information obtained from interviews with judges, liquidators,and firms involved in the bankruptcy process to give an overallpicture of the process in the first two years of its implementation.The bankruptcy process in Hungary has indisputably spurred institutionbuilding in the courts, the trustee profession, and the banks.It may also have succeeded broadly in separating viable fromunviable firms. It did little, however, to further either deeprestructuring or the exit of ailing firms. The changes in incentivesand institutions that are needed to make bankruptcy work intransition economies invariably take time. Hungary's initiative,albeit imperfect, was a bold start toward reform.