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

FIGURE What 11.3are the reform trends? Expanding creditors’ rightsHigher recovery rates in economies with specialized Expanding courts creditors’ and trustees rights has been theReform Recovery rate continues(cents theevendollar)in the jurisdictionswith the best performance. Doing 5 years (figure 11.5). Seventeen econo-most popular reform feature over the past50YESBusiness has recorded 58 reforms making mies have empowered creditors: China,45it easier to close a business in the past 5 the Czech Republic, Denmark, Finland,years. Most focused on expanding creditors’rights and speeding bankruptcy YES Poland, Portugal, Puerto Rico, Roma-France, Hungary, Indonesia, Italy, Korea,40YESproceedings in the court.nia, Serbia, Slovakia, the United States35NOEconomies in Eastern Europe and and Vietnam. Giving creditors NO more sayNOCentral Asia have had the most reforms in the process speeds the resolution of30making it easier to close a business in bankruptcy and is likely to result in thethe past Are there 5 years, specialized especially in speeding Are there minimum continuation of the Can business. creditors Allowingbankruptcy courts?qualifications for trustees?appoint trustees?bankruptcy proceedings (figure 11.4). creditors a greater role in decision makingincreases the recovery rate.Source: Doing Business database.High-income OECD economies followclose behind, focusing more on empow-Reforms expanding the powers ofFIGURE 11.156 Doing Business 2009Higher recovery rates associated with more access to creditPercentage of firms perceivingTable 11.3Private credit as % of GDPaccess as an obstacleering creditors.Establishing or promoting reorganization procedures—a 120 popular reform feature in402007/08Elsewhere in the world reform has100been moving more slowly. The 10 reforms30Established or promoted reorganization procedure Colombia, Czech Republic, Finland, Germany, in Latin America and the Caribbean,80Greece, Latvia, Mexico, New ZealandSub-Saharan Africa and South Asia have6020Developed the trustee professionBosnia and Herzegovina, Czech Republic, Hong ranged from introducing stricter deadlinesto establishing specialized bank-Kong 40 (China), Latvia, Poland10Introduced or tightened time limits and streamlined Bulgaria, 20 Colombia, Portugal, Saudi Arabia ruptcy courts. In 2006 Burundi enactedprocedural appeals0its 0 first bankruptcy law, setting clear timeEstablished a first bankruptcy lawCambodia, Lowest St. Vincent and the Grenadines Highest limits Lowest for procedures. In the Middle Highest EastGranted priority to secured creditorsCzechEconomiesRepublicranked by recovery rate, quintiles and Economies North ranked Africa by only recovery Tunisia rate, and quintiles SaudiSource: Doing Business database.Note: Relationships are significant at the 1% level and remain significantArabiawhen controllinghave reformed.income per capita.Source: Doing Business database; World Bank, World Development Indicators database; World Bank Enterprise Surveys.for debtors with less than €5,000 inassets and new procedures to acceleratepayments to insolvency administrators.In addition, Portugal limited proceduralappeals by unifying its appealsprocess and raising the value thresholdfor claims heard in the courts of first andsecond instance. In the future, appealsof appeals court decisions that confirmfirst-instance decisions will be possibleonly in limited circumstances. This isexpected to cut the number of appealsbefore the supreme court.New Zealand introduced a reorganizationprocedure similar to the onein Australia. The aim is to provide analternative to liquidation and receivershipand maximize a company’s chancesof continuing as a going concern. Greecethoroughly revised its bankruptcy systemto maximize creditors’ recovery of debt.A new law aims to reorganize financiallydistressed companies, preserve thebusiness assets, treat creditors equallyand prevent piecemeal sale. This law isexpected to lead to a boom in restructuringsand, together with a better earlydetection system, allow more companiesto continue as going concerns.Saudi Arabia was the only reformerin the Middle East and North Africa. ItsMinistry of Commerce introduced strictdeadlines for bankruptcy procedures.Auctions of debtors’ assets are expectedto take place quicker than before.Bolivia made going through bankruptcymore complex, by suspendingapplications for voluntary restructuring.The only option now is a bankruptcy procedurethat typically takes years.FIGURE 11.4Most reforms in Eastern Europe & Central Asia and rich economiesNumber of reforms making it easier to close a businessby Doing Business report yearDB2005 DB2006 DB2007 DB2008 DB2009Eastern Europe& Central Asia(28 economies)OECDhigh income(24 economies)East Asia& Pacific(24 economies)Latin America& Caribbean(32 economies)Sub-SaharanAfrica(46 economies)Middle East &North Africa(19 economies)South Asia(8 economies)12Note: A reform is counted as 1 reform per reforming economy per year.Source: Doing Business database.3661921FIGURE 11.2Rankings oare based oFunction of timsuch as lendingof the companyto operateNote: Time and cSee Data notes fFIGURE 11.5Top 5 reformclosing a buReforms includGranted powerIntroduced or tand streamlineEstablished orreorganizationDeveloped the7%Established a fiNote: A reform maSource: Doing Busin(c) The International Bank for Reconstruction and Development / The World Bank