Janet Mitchell has given us a fascinating account of the evolution of the institution of bankruptcy in Hungary. She raises an important question. There are good reasons to expect large numbers of state-owned enterprises (SOEs) in Eastern Europe to be insolvent. In Hungary the banking system has been restructured to enable the commercial banks to take over the task of financing long-term loans for investment, and they have been allocated debts in SOEs. Why do these banks not force insolvent firms into bankruptcy? Why have only 9 out of 681 (less than 2 per cent) bankruptcy proceedings in 1991 been initiated by banks? Janet has given a variety of convincing explanations, and I shall concentrate on the question of the urgency of action to remedy this failure. It is useful to distinguish two cases: firms that have positive cash flow but cannot fully service the debt, and those that can. Those that can service their debt either can have their debt written down, if their assets are best used in their current form, in which case bankruptcy is not necessary (but capital restructuring may be), or their assets should be reallocated if they have higher value in alternative use. If their assets are best reallocated, then they should be sold. If they are SOEs, this process is proceeding as fast as possible through the State Property Agency (SPA), and it is not clear that bankruptcy proceedings usefully alter priorities. They might, but might not – the main problem is the scarcity of administrative capacity to reorganize and restructure, and the problem of finding a buyer or new management.