The Role of Firm Viability, Creditor Behavior and Judicial Discretion in the Failure of Distressed Firms under Courtsupervised Restructuring: Evidence from Belgium
AbstractUnlike Chapter 11 in the U.S., the Belgian reorganization legislation requires that distressed firms remain under court-supervision during plan execution. In principle, the court-supervised post confirmation stage takes a fixed period of 24 months. Using a unique sample of small Belgian firms, we analyze both the likelihood of failure and the time spent before transfer to bankruptcy-liquidation during this post-confirmation stage. More profitable debtors are less likely to fail. If banks are secured by collateral with high liquidation value, debtors are more likely to fail. The mandatory repayment of government debt, like unpaid taxes and social contributions, also renders the distressed firm more likely to fail. Judicial discretion sharply affects the likelihood of failure in a sub sample of individual debtors seeking to preserve a sole proprietorship.
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Bibliographic InfoPaper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 08/509.
Length: 36 pages
Date of creation: Apr 2008
Date of revision:
court-supervised reorganization; bankruptcy; insolvency legislation;
Find related papers by JEL classification:
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
- K20 - Law and Economics - - Regulation and Business Law - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-06-27 (All new papers)
- NEP-CFN-2008-06-27 (Corporate Finance)
- NEP-LAW-2008-06-27 (Law & Economics)
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