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The Role of Firm Viability, Creditor Behavior and Judicial Discretion in the Failure of Distressed Firms under Courtsupervised Restructuring: Evidence from Belgium

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Author Info

  • B. LEYMAN

    ()

  • K. SCHOORS

    ()

  • P. COUSSEMENT

    ()

Abstract

Unlike 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 Info

Paper 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.

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Length: 36 pages
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:rug:rugwps:08/509

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Keywords: court-supervised reorganization; bankruptcy; insolvency legislation;

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References

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  1. Hotchkiss, Edith Shwalb, 1995. " Postbankruptcy Performance and Management Turnover," Journal of Finance, American Finance Association, vol. 50(1), pages 3-21, March.
  2. Mario Cleves & William W. Gould & Roberto G. Gutierrez & Yulia Marchenko, 2010. "An Introduction to Survival Analysis Using Stata," Stata Press books, StataCorp LP, edition 3, number saus3, April.
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  4. Arturo Bris & Ivo Welch & Ning Zhu, 2006. "The Costs of Bankruptcy: Chapter 7 Liquidation versus Chapter 11 Reorganization," Journal of Finance, American Finance Association, vol. 61(3), pages 1253-1303, 06.
  5. Nico Dewaelheyns & Cynthia Van Hulle, 2006. "Corporate Failure Prediction Modeling: Distorted by Business Groups' Internal Capital Markets?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(5-6), pages 909-931.
  6. Timothy C. G. Fisher & Jocelyn Martel, 1996. "Should We Abolish Chapter 11 : Evidence from Canada," CIRANO Working Papers 96s-22, CIRANO.
  7. White, Michelle J, 1989. "The Corporate Bankruptcy Decision," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 129-51, Spring.
  8. Timothy C. G. Fisher & Jocelyn Martel, 1994. "Will the Bankruptcy Reform Work? An Empirical Analysis of Financial Reorganization in Canada," Canadian Public Policy, University of Toronto Press, vol. 20(3), pages 265-277, September.
  9. T.C.G. Fisher & J. Martel, 2000. "Empirical Estimates of Filtering Failure in Court-Supervised reorganization," THEMA Working Papers 2000-45, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
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Cited by:
  1. Dewaelheyns, Nico & Van Hulle, Cynthia, 2009. "Filtering speed in a Continental European reorganization procedure," International Review of Law and Economics, Elsevier, vol. 29(4), pages 375-387, December.

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