Publication Type

Working Paper

Version

publishedVersion

Publication Date

9-2023

Abstract

This article seeks to test the validity of the traditional classification of insolvency systems as debtor-friendly or creditor-friendly jurisdictions. For that purpose, the article develops a novel Global Insolvency Index (“GII”) that seeks to measure the attractiveness of reorganization procedures from the perspective of debtors, secured creditors and general unsecured creditors. After assessing the attractiveness and evolution of reorganization procedures in 53 jurisdictions around the world, it will be shown that insolvency systems can be pro-debtor and pro-creditor, anti-debtor and anti-creditor, or somewhere in the middle. Hence, the GII developed in this article shows that the traditional classification of insolvency systems as debtor-friendly or creditor-friendly jurisdictions is misleading and therefore should be abandoned. Moreover, it will show that many jurisdictions around the world have various reorganization procedures that exhibit different levels of attractiveness for debtors and creditors. Therefore, when assessing the attractiveness of a restructuring framework from the perspective of debtors and creditors, labelling jurisdictions instead of procedures can also be misleading. Finally, it will be shown that many jurisdictions only provide attractive reorganization procedures for certain debtors and creditors. For instance, the GII shows that many insolvency systems traditionally classified as creditor-friendly jurisdictions provide strong protections to secured creditors but do not provide an attractive framework for unsecured creditors. Similarly, other insolvency jurisdictions provide strong protections to employees and tax authorities but are not attractive to secured creditors and the general body of unsecured creditors. A similar argument can be made with respect to debtors. Indeed, while the attractiveness of reorganization procedures for different types of debtors is not measured in the GII, it will be argued that most businesses around the world are micro and small enterprises that need simplified insolvency procedures. Unfortunately, only a few jurisdictions around the world, such as the United States, South Korea, Myanmar, Colombia, Chile, Australia, Spain and Singapore, provide this type of procedures. Therefore, labelling an insolvency system as a debtor-friendly jurisdiction would also be misleading if, despite the existence of an attractive reorganization procedure for medium and large enterprises, most businesses in the country do not have access to an attractive reorganization procedure. After debunking the traditional classification of debtor-friendly or creditor-friendly insolvency systems, the article concludes by providing various lessons for jurisdictions interested in improving the overall attractiveness of their restructuring framework.

Keywords

insolvency, restructuring, debtors, creditors, attractiveness of reorganization procedures

Discipline

Bankruptcy Law | Business Organizations Law

Research Areas

Corporate, Finance and Securities Law

First Page

1

Last Page

40

Identifier

10.2139/ssrn.4557414

Publisher

Singapore Management University Yong Pung How School of Law Research Paper 4/2023

City or Country

Singapore

Additional URL

https://doi.org/10.2139/ssrn.4557414

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