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

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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
LowestHighestEconomies ranked by recovery rate, quintilesLowestHighestEconomies 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.FIGURE 11.3Higher recovery rates in economies with specialized courts and trusteesRecovery rate (cents on the dollar)50YES45403530NOAre there specializedbankruptcy courts?Source: Doing Business database.YESWho reformed in 2007/08?Four Eastern European economiesFIGURE 11.4joined Poland in streamlining bankruptcyprocedures. Latvia passed a newMost reforms in Eastern Europe & Central Asia and rich economiesPoland was the top reformer in closingNumber of reforms making it easier to close a businessa business in 2007/08 (table 11.3). by Its Doing Business insolvency report yearlaw in November 2007. NowLaw on Trustee Licensing DB2005 took DB2006 effect on DB2007 financially DB2008 distressed DB2009 companies canEastern Europe& October Central Asia 10, 2007. The new law tightened choose to continue operating by pursuingreorganization. Like Poland, Latvia21(28 professional economies) requirements for administratorsto ensure they have the skills and also tightened the qualification stan-OECDhigh education incomeneeded to oversee bankruptcy dards for bankruptcy administrators. 19 So(24 economies)proceedings. Obtaining a trustee’s licenseAsia now requires passing an exam in Republic’s Insolvency Act took effect ondid Bosnia and Herzegovina. The CzechEast& Pacific6(24 economics, economies) law, finance and management.America The reform also limits trustees’ organization as the preferred method forJanuary 1, 2008. The law introduces re-Latin& pay Caribbean to 3% of the bankrupt estate’s 6value,resolving insolvency, mandates stricter(32 economies)down from 5%.deadlines, establishes an electronic insolvencyregister and sets new qualificationSub-SaharanAfricaThree economies in Latin America3(46 and economies) the Caribbean rank close behind standards for trustees.Middle Poland East & top reformers. Colombia, the Bulgaria passed 2 laws: the CivilNorth runner-up Africa reformer,2introduced 2 new Procedure Code and the Law for the(19 economies)insolvency proceedings: a reorganization Commercial Registry. The first specifiesSouth procedure Asia to restructure insolvent companiesand a mandatory liquidation proels:first before the court of appeals andthat appeals will now take place at 2 lev-(8 economies)1cedure. Note: A reform Its is counted new insolvency as 1 reform per reforming law tightenseconomy per year. then before the supreme court. Bulgaria’sSource: Doing Business database.time limits for negotiating reorganization supreme court will be the final arbiter,agreements. Before, the term allowed was with the discretion to decide whether6 months, with a possible extension of 8 or not to hear a case. Before, court decisionscould be appealed only before themonths. The new law limits the term to 4months, and the extension to 2.supreme court—which usually sent casesMexico amended its bankruptcy back to the district court—resulting inlaw. Now debtors and creditors may long delays. Another first for Bulgaria:enter into a reorganization agreement major decisions and rulings of the bankruptcycourt are posted on the commer-at any stage of the insolvency procedure.St. Vincent and the Grenadines enacted cial registry’s website.a bankruptcy law in 2007. The law is the In East Asia and Pacific, Hong Kongcountry’s first set of rules regulating the (China) and Cambodia were the onlybankruptcy of private enterprises since reformers. Hong Kong (China) issued theits independence.Bankruptcy Amendment Rules for 2007,NOAre there minimumqualifications for trustees?YESNOCan creditorsappoint trustees?CLOSING A BUSINESs 55FIGURE 11.2strengthening trustees’ role and powers.Rankings on closing a businessCambodia are based adopted on 1 subindicator the 2007 BankruptcyLaw, its first regulating the bankruptcy ofFunction of time, cost and other factorsprivate such as lending enterprises. rate and the The likelihood law introduces aof the company continuingreorganization procedure to restructureto operateinsolvent companies.Five OECD high-income economiesjoined the list of 100% reformers in 2007/08.Finland streamlined Recovery court-supervisedreorganization. Now ratea simple majorityof creditors can approve simplified reorganizationplans; before, unanimousconsent was required. Finland revisedNote: Time and cost do not count separately for the ranking.itsSeeRestructuringData notes for details.of Enterprises Act,accelerating hearings and making theentire process more flexible. Germanyamended its insolvency code to makeit FIGURE easier 11.5to maintain a debtor’s businessas Top a 5 going reform concern. features The in new law allowsthe closing insolvency a business court to suspend enforcementactions against assets essential toReforms including feature since DB2005 (%)continuing the business.29%Granted Portugal power to cut creditors the formality of publishinginsolvency notices in newspapers.28%It also introduced a fast-track procedureIntroduced or tightened statutory time limitsand streamlined appealsTable 11.2Where is bankruptcy the most 22% efficient—and Established where or the promoted least?reorganization procedureTime (years)16%FastestSlowestDeveloped the trustee professionIreland 0.4 Ecuador 5.3Japan 7% 0.6 Indonesia 5.5CanadaEstablished a first0.8bankruptcyHaitilaw5.7Singapore 0.8 Philippines 5.7Note: A reform may include several reform features.Belgium 0.9 Belarus 5.8Source: Doing Business database.Finland 0.9 Angola 6.2Norway 0.9 Czech Republic 6.5Australia 1.0 Maldives 6.7Belize 1.0 Mauritania 8.0Iceland 1.0 India 10.0Cost (% of estate)LeastMostColombia 1.0 Micronesia 38.0Kuwait 1.0 Philippines 38.0Norway 1.0 Samoa 38.0Singapore 1.0 Solomon Islands 38.0Bahamas, The 3.5 Vanuatu 38.0Belgium 3.5 Venezuela 38.0Brunei 3.5 Sierra Leone 42.0Canada 3.5 Ukraine 42.0Finland 3.5 Liberia 42.5Georgia 3.5 Central AfricanRepublic76.0Source: Doing Business database.(c) The International Bank for Reconstruction and Development / The World Bank
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vi Doing Business 2009• Doing Bus
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ABout doing business ix13. For exam
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OverviewFIGURE 1.1Which regions hav
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104 Doing Business 2009FINLAND OECD
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106 Doing Business 2009GHANA Sub-Sa
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108 Doing Business 2009GUYANA Latin
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110 Doing Business 2009INDIA South
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112 Doing Business 2009ITALY OECD:
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114 Doing Business 2009KIRIBATI Eas
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116 Doing Business 2009LEBANON Midd
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118 Doing Business 2009MADAGASCAR S
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120 Doing Business 2009MAURITANIA S
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122 Doing Business 2009MONTENEGRO E
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124 Doing Business 2009NEW ZEALAND
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126 Doing Business 2009PAKISTAN Sou
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128 Doing Business 2009PHILIPPINES
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130 Doing Business 2009RUSSIAN FEDE
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132 Doing Business 2009SERBIA Easte
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134 Doing Business 2009SOLOMON ISLA
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136 Doing Business 2009ST. VINCENT
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138 Doing Business 2009SYRIA Middle
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140 Doing Business 2009TOGO Sub-Sah
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142 Doing Business 2009UKRAINE East
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144 Doing Business 2009VANUATU East
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146 Doing Business 2009ZIMBABWE Sub
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148 Doing Business 2009Ratification
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150 Doing Business 2009Ratification
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152 Doing Business 2009GLOBAL CONTR
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154 Doing Business 2009Mark SwanPri
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156 Doing Business 2009Dirk Van Str
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158 Doing Business 2009Iassen Hrist
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160 Doing Business 2009Marie-Edith
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162 Doing Business 2009Bertrand Fle
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164 Doing Business 2009Hussein Mahm
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166 Doing Business 2009Steeve Romua
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168 Doing Business 2009Estuardo Enr
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170 Doing Business 2009Mayur Ghadia
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172 Doing Business 2009Federico Gua
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174 Doing Business 2009Zharkymbai B
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176 Doing Business 2009Suzana Stojk
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178 Doing Business 2009Odmaa Khurel
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180 Doing Business 2009Diaouga Haou
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182 Doing Business 2009Marco Antoni
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184 Doing Business 2009of Ius Labor
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186 Doing Business 2009Cecil French
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188 Doing Business 2009St. LuciaTha
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190 Doing Business 2009Sakares Kham
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192 Doing Business 2009Şule Tunal
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194 Doing Business 2009Valeria Samb
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