In a world of integrated capital markets, a financial crisis can deeply imperil financial stability. In order to mitigate the potential impact of financial crises, the World Bank and the IMF, working through the Financial Sector Assessment Program (FSAP) and with UNCITRAL, jointly developed a system of benchmarks.
These benchmarks are used to evaluate the strength of country insolvency and creditor rights laws in Reports on the Observance of Standards and Codes (ROSCs) . In the insolvency context, ROSCs provide an opportunity for countries to evaluate, among other issues, provisions in their laws addressing creditor rights, legal frameworks, institutional frameworks, and informal corporate work-outs and restructurings.
An efficient system for enforcing debt claims is crucial to a functioning credit system, especially for unsecured credit. A successful creditor rights system requires:
- Means of creating credit that is readily accessible to the public.
- Easy methods of enforcement.
- A legal framework to ensure compatibility between the secured credit system and the insolvency system.
A strong legal framework is an essential component of an effective insolvency systems. In order to be effective, the legal framework should:
Address the principles and policies necessary to develop a comprehensive insolvency law including insolvency procedures.
Consider the role of insolvency law within the broader commercial and cultural frameworks within which it is designed to operate.
Effective insolvency laws require a strong institutional framework which addresses the:
Design of the bankruptcy court.
Significance of separate bankruptcy courts.
Effective functioning of the bankruptcy court within time-bound procedures.
Proper balance of judicial discretion in appellate procedures.
Training, qualification, and capacity of the bankruptcy judges.
|Informal Corporate Work-Outs and Restructurings|
An enterprise is usually more valuable as a going concern than if it is liquidated because it is able to maximize asset value and preserve jobs. In this light, participants in an insolvency regime should attempt to restore an enterprise to financial viability, if possible, by establishing an enabling environment that:
Provides for the disclosure of accurate financial information.
Encourages the provision of financing to viable distressed companies.
Provides for a broad range of restructuring activities.