Bankruptcy Law is one of the least understood areas of legal reform. The concept is tainted with perceptions of failure, wrong-doing, and disgrace. Some countries attempt to insure that economic actors will not go bankrupt by making it very difficult for any but the very wealthy to incorporate, assuming that the state should not permit entry to those who might fail. Deeply ingrained cultural attitudes are sometimes at odds with the idea of “forgiving” debtor companies who cannot pay their bills, so that punitive measure are sought as part of the bankruptcy package.
No matter what the local perceptions, Bankruptcy Law is critical to the proper functioning of a market-oriented economy, especially one in which entrepreneurship is encouraged and risk-taking is necessary. A well-designed and effective system of insolvency law provides a valuable incentive for maintaining a high standard of corporate governance, including the maintenance of fiscal discipline by company management. The manner in which creditors and debtors are treated under a given bankruptcy law, furthermore, influences perceptions of the corporate sector and corporate finance more generally and the extent to which parties are willing to extend credit to corporate entities initially and to commence bankruptcy proceedings in the event of a company’s failure.
The CLIR Bankruptcy section analyzes a country’s insolvency system to determine what policy choices are reflected in a target country’s law. This section looks at the court system to see how the courts are handling existing cases, insolvency laws, the ease of liquidation, and the ability to reorganize.
