This chapter argues that countries, and especially emerging economies, should facilitate the choice of insolvency forum. Ideally, this choice of insolvency forum should be allowed ex ante. Thus, in addition to providing debtors and creditors with the possibility of having access to more attractive insolvency systems in the hypothetical event of financial distress, the ex ante choice of insolvency forum can promote predictability, access to finance and economic growth. Alternatively, if the insolvency forum cannot be chosen ex ante, at least it should be facilitated ex post. Regardless of the solution eventually adopted, this chapter explains that various safeguards need to be adopted to prevent the opportunistic choice or change of insolvency forum. It also argues that this new approach for the choice of insolvency forum requires certain changes to the rules governing cross-border insolvency and particularly those established in the UNCITRAL Model Law on Cross-Border Insolvency.

This chapter explains why the promotion of workouts and hybrid procedures can be particularly desirable in emerging economies, and more generally in countries with inefficient insolvency systems and companies with concentrated debt structures. Nonetheless, informal workouts are subject to certain limitations. For that reason, in addition to implementing several strategies to actively promote informal workouts, this chapter argues that emerging economies should adopt enhanced workouts where the support of certain norms or actors can facilitate a successful out-of-court restructuring. Finally, it is suggested that emerging economies should also implement hybrid procedures equipped with several tools existing in formal reorganization procedures. Yet, while hybrid procedures generally require miminal court involvement, it is argued that the design of these procedures in emerging economies should limit the involvement of the judiciary even further. This chapter explains how this goal can be achieved while simultaneously increasing the protection of creditors against the potential opportunism of debtors.

Micro- and small enterprises (MSEs) represent the majority of businesses in most countries around the world. Despite the economic relevance of MSEs, most jurisdictions do not provide a suitable insolvency framework for MSEs. This chapter starts by analyzing the particular features of MSEs as well as the need to provide them with a simplified insolvency framework. It then discusses the solutions and policy recommendations that the academic literature and various international organizations have suggested for the design of a simplified insolvency regime for MSEs. This chapter concludes by proposing several pillars for the design of an efficient insolvency framework for MSEs in the context of emerging economies.

This chapter examines the market and institutional environments existing in emerging economies. Therefore, it provides the basis for the understanding of the insolvency framework for emerging economies suggested in this book. Despite the divergences existing across jurisdictions, this chapter shows that most emerging economies share some common features, including the existence of an institutional environment that generally comprises an inefficient judicial system, high levels of corruption, low levels of protection of property rights, and a weak rule of law. Other features commonly found in emerging economies include the existence of underdeveloped financial systems and the prevalence of micro- and small enterprises and large controlled firms. This chapter concludes by highlighting the fact that some features generally existing in emerging economies are also found in many advanced economies. Therefore, it will be argued that various policy recommendations suggested for the improvement of insolvency law in emerging economies can also be suitable for advanced economies.

This chapter seeks provide a general overview of insolvency systems around the world, including examples and references from more than 50 jurisdictions from Asia and the Pacific, Africa, Europe, the Americas and the Middle East. Due to a variety of legal, economic and historical reasons, it will be shown that insolvency laws in advanced economies and emerging markets and developing economies (EMDEs) share many similarities. It will be argued that the adoption of "international best practices" and undesirable legal transplants have also contributed to these similarities. Interestingly, the divergences generally found in the design of insolvency law in advanced economies and EMDE do not seem to respond to their different market and institutional environments. Instead, they are usually explained by other factors such as legal origins, the different motivation and political economy of insolvency reforms, or the moment in which a particular insolvency legislation was enacted. It will be argued that the lack of an insolvency law tailored to the market and institutional environment existing in EMDEs has contributed to the failure of their insolvency law.

This chapter starts by explaining that, when a company becomes factually insolvent but it is not yet subject to a formal insolvency proceeding, the shareholders – or the directors acting on their behalf – may engage, even in good faith, in various forms of behavior that can divert or destroy value at the expense of the creditors. For this reason, most jurisdictions around the world respond with a variety of strategies, including the imposition of special directors’ duties in the zone of insolvency. This chapter identifies six regulatory models for the design of directors’ duties in the zone of insolvency. After examining the advantages and weaknesses of each regulatory model, this chapter emphasizes that the desirability of a particular approach depends on a variety of country-specific and firm-specific factors. It concludes by suggesting various policy recommendations for the design of directors’ duties in the zone of insolvency in emerging economies.

This chapter argues that insolvency law has also failed in many advanced economies. Therefore, insolvency law needs to be reinvented beyond emerging economies. It is argued that certain trends and policy discussions taking place around the world seem to be improving the attractiveness of insolvency systems in many countries. In fact, it is pointed out that these reforms are leading to a certain level of convergence in the design of insolvency laws around the world. This chapter concludes by arguing that many of the ideas and policy recommendations suggested for the design of insolvency law in emerging economies can also be useful for the improvement of insolvency laws in many advanced economies. Yet, due to the international divergences existing in market and institutional environments, it is important to make sure that countries do not adopt undesirable legal transplants. Otherwise, well-intentioned insolvency reforms may not achieve their expected outcomes and may even end up doing more harm than good.

This chapter argues that, even if emerging economies actively promote hybrid procedures and workouts and create a simplified insolvency framework for micro- and small enterprises (MSEs), ordinary insolvency proceedings will still play a significant role in the economy. On the one hand, they will serve as the primary mechanism for the reallocation of assets of nonviable medium and large enterprises (MLEs). On the other hand, formal reorganization procedures can still be relevant for viable MLEs unable to complete a workout or hybrid procedure due to several factors, including the lack of trust in the debtor’s management team or the need to use some provisions exclusively available in formal insolvency proceedings. Therefore, emerging economies should make sure to improve the efficiency of their ordinary insolvency proceedings. Nonetheless, they cannot adopt the type of complex procedure heavily supervised by courts existing in countries with strong institutional environments. Instead, they need to implement a procedure that should not require significant court involvement. This chapter explains how this goal can be achieved while making the procedure more attractive to debtors and creditors.

This chapter analyzes the importance of insolvency law for the promotion of economic growth as well as the goals and strategies of insolvency law. It is argued that, even though insolvency law seeks to solve similar economic problems across jurisdictions, the intensity of these problems and the desirability of a particular insolvency response depend on a variety of country-specific and firm-specific factors. Unfortunately, many emerging economies have adopted insolvency laws that usually replicate practices or procedures existing in countries with totally different market and institutional environments. As a result, insolvency law has failed to deliver the expected outcomes and ultimately serve as a catalyst for growth. This chapter concludes by providing an overview of the book and the underlying reasons justifying the need to reinvent insolvency law in emerging economies and beyond.