Innovations in Bankruptcy—Pricing the Priority of Insolvency Claims
Following the wave of recent financial turmoil, many developing countries have learned the value of an effective bankruptcy system in deterring excessive use of debt and providing an orderly way to resolve a debt crisis. As a result, they are now r...
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| Format: | Viewpoint |
| Language: | English |
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World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/1999/09/2531715/innovations-bankruptcy-pricing-priority-insolvency-claims http://hdl.handle.net/10986/11464 |
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okr-10986-114642021-04-23T14:02:55Z Innovations in Bankruptcy—Pricing the Priority of Insolvency Claims Leechor, Chad ASSET STRIPPING AUCTIONS BANKRUPTCY BANKRUPTCY PROCEDURES BANKRUPTCY REFORM COMMON STOCK CORPORATE MANAGERS CREDITOR CREDITORS DEBT ECONOMIC RESEARCH EXPECTED VALUE EXTERNAL FINANCING INSOLVENCY INSOLVENCY LAW INSOLVENCY PRACTICES INSOLVENCY PROCEEDING LIQUIDATION LIQUIDITY OUTSTANDING DEBT REORGANIZATION SECURITIES TRADERS BANKRUPTCY INSOLVENCY DEVELOPING COUNTRIES DEBT DEBT CRISIS PRICING POLICIES OF RESOURCES CORPORATE GOVERNANCE SECURITIES MARKETS SHAREHOLDERS LEGAL RECOURSE Following the wave of recent financial turmoil, many developing countries have learned the value of an effective bankruptcy system in deterring excessive use of debt and providing an orderly way to resolve a debt crisis. As a result, they are now reforming their bankruptcy systems, generally modeling them on those of advanced countries. But there is dissatisfaction with bankruptcy frameworks in advanced countries too. Some alternatives have been proposed. One is an options-based approach that provides an objective way of pricing creditor claims according to priority. With allowances for local conditions, this approach offers developing countries a chance to leapfrog existing bankruptcy practices and their limitations. Effective bankruptcy systems have implications for corporate governance and for securities markets. For corporate managers and controlling shareholders, the cost of bankruptcy includes the loss of corporate control and the risk of personal liability. This threat serves as a restraint on the use of debt. In the event of default an efficient and orderly transfer of corporate control to creditors reduces the likelihood of asset stripping and looting by insiders. For creditors, available legal recourse makes it possible to extend credit at a reasonable cost. And in a cyclical downturn or in the face of financial distress, creditors are less likely to panic and liquidate securities on a massive scale. 2012-08-13T15:08:33Z 2012-08-13T15:08:33Z 1999-09 http://documents.worldbank.org/curated/en/1999/09/2531715/innovations-bankruptcy-pricing-priority-insolvency-claims Viewpoint. -- Note no. 194 (September 1999) http://hdl.handle.net/10986/11464 English Viewpoint CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Viewpoint Publications & Research |
| repository_type |
Digital Repository |
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Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
| language |
English |
| topic |
ASSET STRIPPING AUCTIONS BANKRUPTCY BANKRUPTCY PROCEDURES BANKRUPTCY REFORM COMMON STOCK CORPORATE MANAGERS CREDITOR CREDITORS DEBT ECONOMIC RESEARCH EXPECTED VALUE EXTERNAL FINANCING INSOLVENCY INSOLVENCY LAW INSOLVENCY PRACTICES INSOLVENCY PROCEEDING LIQUIDATION LIQUIDITY OUTSTANDING DEBT REORGANIZATION SECURITIES TRADERS BANKRUPTCY INSOLVENCY DEVELOPING COUNTRIES DEBT DEBT CRISIS PRICING POLICIES OF RESOURCES CORPORATE GOVERNANCE SECURITIES MARKETS SHAREHOLDERS LEGAL RECOURSE |
| spellingShingle |
ASSET STRIPPING AUCTIONS BANKRUPTCY BANKRUPTCY PROCEDURES BANKRUPTCY REFORM COMMON STOCK CORPORATE MANAGERS CREDITOR CREDITORS DEBT ECONOMIC RESEARCH EXPECTED VALUE EXTERNAL FINANCING INSOLVENCY INSOLVENCY LAW INSOLVENCY PRACTICES INSOLVENCY PROCEEDING LIQUIDATION LIQUIDITY OUTSTANDING DEBT REORGANIZATION SECURITIES TRADERS BANKRUPTCY INSOLVENCY DEVELOPING COUNTRIES DEBT DEBT CRISIS PRICING POLICIES OF RESOURCES CORPORATE GOVERNANCE SECURITIES MARKETS SHAREHOLDERS LEGAL RECOURSE Leechor, Chad Innovations in Bankruptcy—Pricing the Priority of Insolvency Claims |
| relation |
Viewpoint |
| description |
Following the wave of recent financial
turmoil, many developing countries have learned the value of
an effective bankruptcy system in deterring excessive use of
debt and providing an orderly way to resolve a debt crisis.
As a result, they are now reforming their bankruptcy
systems, generally modeling them on those of advanced
countries. But there is dissatisfaction with bankruptcy
frameworks in advanced countries too. Some alternatives have
been proposed. One is an options-based approach that
provides an objective way of pricing creditor claims
according to priority. With allowances for local conditions,
this approach offers developing countries a chance to
leapfrog existing bankruptcy practices and their
limitations. Effective bankruptcy systems have implications
for corporate governance and for securities markets. For
corporate managers and controlling shareholders, the cost of
bankruptcy includes the loss of corporate control and the
risk of personal liability. This threat serves as a
restraint on the use of debt. In the event of default an
efficient and orderly transfer of corporate control to
creditors reduces the likelihood of asset stripping and
looting by insiders. For creditors, available legal recourse
makes it possible to extend credit at a reasonable cost. And
in a cyclical downturn or in the face of financial distress,
creditors are less likely to panic and liquidate securities
on a massive scale. |
| format |
Publications & Research :: Viewpoint |
| author |
Leechor, Chad |
| author_facet |
Leechor, Chad |
| author_sort |
Leechor, Chad |
| title |
Innovations in Bankruptcy—Pricing the Priority of Insolvency Claims |
| title_short |
Innovations in Bankruptcy—Pricing the Priority of Insolvency Claims |
| title_full |
Innovations in Bankruptcy—Pricing the Priority of Insolvency Claims |
| title_fullStr |
Innovations in Bankruptcy—Pricing the Priority of Insolvency Claims |
| title_full_unstemmed |
Innovations in Bankruptcy—Pricing the Priority of Insolvency Claims |
| title_sort |
innovations in bankruptcy—pricing the priority of insolvency claims |
| publisher |
World Bank, Washington, DC |
| publishDate |
2012 |
| url |
http://documents.worldbank.org/curated/en/1999/09/2531715/innovations-bankruptcy-pricing-priority-insolvency-claims http://hdl.handle.net/10986/11464 |
| _version_ |
1764416830530650112 |