Municipal Insolvency Principles and Practice -- Comparing the Cases of Hungary and South Africa

Speakers:  Mihaly Kopanyi, TUDUR, and Matt Glasser, AFTU1

These presentations compared the conceptual framework of the two countries' municipal insolvency legislation and provided detailed assessment of the first experiences.

Hungary introduced the insolvency legislation in 1996 and has a rich collection of cases in the period of 1996-2003. These suggest that the municipal insolvency law works very well and has played a rather positive role: in hardening the budget constraints, in encouraging early preemptive and preventive actions like out-of-court agreements with creditors combined with deep restructuring of the local expenditures, and in encouraging disciplined lending. The most important outcomes are (i) the law provides for a transparent, rule-based framework for managing municipal insolvency; (ii) provides safeguards for maintaining core local public services during and after the insolvency procedure; and (iii) comfort the central government in maintaining its no bail out policy. Besides these achievements, the presentations addressed the issues of shortcomings and both positive and negative lessons learned during the implementation.

The South Africa municipal insolvency legislation has been through a 5-year policy development and legislative phase, and provides an interesting case study in the Parliamentary politics of national intervention in a decentralized context. It also provides a good ground to compare the two conceptually different insolvency frameworks. In addition, there are also rather interesting cases how the municipal insolvency was treated before the new legislation, and how the lesson learned motivated the development of a rule-based insolvency resolution system in South Africa's circumstances.