Overview of Insolvency and Debt Restructuring Reforms in Response to the COVID-19 Pandemic and Past Financial Crises : Lessons for Emerging Markets
This note is part of the series of COVID-19 Notes developed by the World Bank Group’s Equitable Growth, Finance and Institutions (EFI) team. By highlighting concrete examples of insolvency and debt restructuring reforms undertaken in response to th...
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/en/182341615352260595/Overview-of-Insolvency-and-Debt-Restructuring-Reforms-in-Response-to-the-COVID-19-Pandemic-and-Past-Financial-Crises-Lessons-for-Emerging-Markets http://hdl.handle.net/10986/35425 |
| Summary: | This note is part of the series of
COVID-19 Notes developed by the World Bank Group’s Equitable
Growth, Finance and Institutions (EFI) team. By highlighting
concrete examples of insolvency and debt restructuring
reforms undertaken in response to the COVID-19 pandemic as
well as past crises, this note highlights the importance of
sound insolvency and debt restructuring regimes which are
lacking in many emerging markets. Countries with
under-developed or nascent insolvency frameworks should
consider prioritizing the reforms covered in this note to
improve their readiness to deal with a spike in business
insolvencies. The note reviews insolvency and debt
restructuring reforms aimed at addressing the economic
effects of the COVID-19 crisis during two stages: the crisis
containment stage and the crisis recovery stage. Crisis
containment includes short-term insolvency law reforms
adopted at the beginning of the COVID-19 outbreak to prevent
businesses from being systematically pushed into insolvency.
The objective of the reforms implemented during this stage
was to ‘flatten the curve’ of insolvency cases and reduce
the burden on institutions. Crisis recovery, the second
stage, assesses actions taken by some countries during the
COVID-19 crisis as well as during previous financial crises
to address the medium-to-long term challenges of high levels
of firm distress. The objectives of these second-stage
reforms are generally to strengthen the institutional
capacity and overall functioning of a country’s insolvency
regime and to prevent a potential systemic banking crisis
caused by elevated levels of non-performing loans. |
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