DOING BUSINESS 2009 - JOHN J. HADDAD, Ph.D.

54 Doing Business 2009OverviewStarting a businessDealing with construction permitsEmploying workersRegistering propertyGetting creditProtecting investorsPaying taxesTrading across bordersEnforcing contractsClosing abusinessFIGURE 11.1Higher recovery rates associated with more access to creditPrivate credit as % of GDP120100806040200LowestHighestEconomies ranked by recovery rate, quintilesPercentage of firms perceivingaccess to credit as an obstacleLowestHighestEconomies ranked by recovery rate, quintilesNote: Relationships are significant at the 1% level and remain significant when controlling for income per capita.Source: Doing Business database; World Bank, World Development Indicators database; World Bank Enterprise Surveys.403020100Carlos, the owner of a large ColombianFIGUREvency11.3laws are most effective, creditors—manufacturing firm, got bad news: his confident that they will be able to collectRecovery rate (cents on the dollar)main customer had just entered bankruptcy.Carlos feared that it might take The benefits YES of efficient bankruptcyon50loans—are more likely to lend. 1years to recover the company’s loan— regulations45are particularly evident whenand that his business could suffer harm. comparing rich economies. Recent studiesFIGURE But 11.1 there is good news too. Colombia’srecovery new insolvency rates associated law came with into more access to creditors credit are 92% of the value of the YES40in Europe find that actual returnsHighereffect at the end of 2007, streamlining Percentage loan in the of United firms perceiving35Kingdom, 80% in thePrivate credit as % of GDPaccess to credit as an obstaclebankruptcy procedures. Before, a debtor Netherlands, 67% NO in Germany and 56%120 could object to every claim from any in 4030France. 2 Why the big spread? In part100 creditor, greatly delaying the court process.because it takes only a year to finish the30 Are there specialized80Now all objections must be resolved insolvency bankruptcy process courts? in London, 13 monthsin one court hearing. The new law also in Amsterdam and 15 months in Berlin,60Source: 20 Doing Business database.tightens procedural time limits. And it but almost 2 years in Paris, according to40gives creditors more power to influence Doing10Business data.the 20 proceedings, such as allowing them Good bankruptcy laws do 3 mainto remove and replace the liquidator.FIGUREthings.11.400 They seek to rehabilitate viableEfficient Lowest bankruptcy regulations Highest businesses Lowest and liquidate unviable Highest ones.improve Economies access ranked to by recovery credit. rate, Where quintiles insol-They Economies aim to ranked maximize by recovery the value rate, quintiles receivedNote: Relationships are significant at the 1% level and remain significant when controlling for incomeTable 11.1by creditors, shareholders, DB2005 per capita.employeesSource: Doing Business database; World Bank, World Development Indicators database; World Bank Enterprise Surveys.Eastern EuropeWhere is it easy to close a business—& and Central other Asia stakeholders by requiring thatand where not?FIGURE 11.3(28 businesses economies) be turned around, sold asHigher recovery Recovery rates in economies Recovery with specializedEasiestrate Most difficult rategoing concerns courts and or trusteesOECDliquidated—whicheverincome generates the greatest total value.Recovery rate (cents on the dollar)highJapan 5092.5 Liberia 8.3 (24 economies)And they establish a system for clearlySingapore YES 91.3 Suriname 8.1EastNorway 89.0 Mauritania 6.7 ranking Asia creditors. Countries with laws45& Pacific6Canada 88.7 Venezuela 6.0 (24 meeting economies) these 3 objectives achieve aFinland 87.3 Congo, Dem. Rep. 5.4 Latin higher America recovery rate than countries withoutCaribbean such laws.640YESIreland 86.6 Philippines 4.4 &YESDenmark 86.5 Micronesia 3.5(32 economies)Doing Business studies the time, costBelgium 35NO86.3 Haiti 2.7 Sub-Saharanand outcomes of bankruptcyNOproceedingsUnited Kingdom 84.2 NO Zimbabwe 0.0 Africa3(46 involving economies) domestic entities. Speed, lowNetherlands 3082.7 Central African 0.0RepublicMiddle cost and East continuation &of viable businessAre there specializedAre there minimum NorthNote: Rankings are based on the recovery rate: how many cents operations Africa characterize Can 2 creditors the top-performingeconomies. In these economies busi-bankruptcy courts?qualifications for (19 trustees? economies) appoint trustees?on the dollar claimants (creditors, tax authorities and employees)Source: recover Doing from the Business insolvent database. firm. See Data notes for details.Source: Doing Business database.South nesses Asia are more likely to be sold or reorganizedas a going concern rather thanHigher recovery rates in economies with specialized courts and trusteesliquidated through piecemeal sales. Andmost allow creditors significant inputinto the appointment of administratorsand require special qualifications fortrustees (figure 11.3).In Canada, Ireland, YES Japan, Norwayand Singapore foreclosure, reorganiza-or liquidation is completed withinNOtionNOa year (table 11.1). Canada and Irelandhave specialized bankruptcy courts andstatutory time limits. They also limit proceduraltrustees? appeals. appoint Denmark trustees? introducedAre there minimumCan creditorsqualifications fora “floating charge” in 2006 to allow securedcreditors to take security over anentire business. This increases the likelihoodthat a viable business will be soldas a going concern. In Colombia, Kuwait,Most reforms in Eastern Europe & Central Asia and rich economiesNorway and Singapore it costs only aboutNumber of reforms making it easier to close a businessby Doing Business 1% of report the yearbankrupt estate’s value to resolveinsolvency DB2008 (table DB2009 DB2006 DB2007 11.2).(8 economies)1FIGURE 11.2Rankings on closing a businessare based on 1 subindicator19Function of time, cost and other factorssuch as lending rate and the likelihoodof the company continuingto operate100%RecoveryrateNote: Time and cost do not count separately for the ranking.See Data notes for details.21FIGURE 11.2Rankings onare based oFunction of timsuch as lendingof the companyto operateNote: Time and coSee Data notes foFIGURE 11.5Top 5 reformclosing a busReforms includGranted powerIntroduced or tand streamlineEstablished or preorganizationDeveloped the7%Established a fiNote: A reform maySource: Doing BusinFIGURE 11.4Note: A reform is counted as 1 reform per reforming economy per year.Source: Doing Business database.(c) The International Bank for Reconstruction and Development / The World BankFIGURE 11.5