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The Challenges of Bankruptcy Reform

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  • Elena Cirmizi
  • Leora Klapper
  • Mahesh Uttamchandani

Abstract

The 2008 financial crisis was followed by a global economic downturn, a credit crunch, and a reduction in cross-border lending, trade finance, and foreign direct investment, which adversely affected businesses around the world. The consequent increase in the number of firm insolvencies in the corporate sector highlights the need for commercial bankruptcy laws to liquidate efficiently unviable firms and reorganize viable ones, so as to maximize the total value of proceeds received by creditors, shareholders, employees, and other stakeholders. The authors summarize the theoretical and empirical literature on bankruptcy design, discuss the challenges of introducing and implementing bankruptcy reforms, and present examples of how policymakers are trying to take advantage of the current economic downturn as an opportunity to engage in meaningful reform of the bankruptcy process. They also review the main principles of efficient insolvency laws and bankruptcy procedures. Copyright 2012, Oxford University Press.

Suggested Citation

  • Elena Cirmizi & Leora Klapper & Mahesh Uttamchandani, 2012. "The Challenges of Bankruptcy Reform," World Bank Research Observer, World Bank Group, vol. 27(2), pages 185-203, August.
  • Handle: RePEc:oup:wbrobs:v:27:y:2012:i:2:p:185-203
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    File URL: http://hdl.handle.net/10.1093/wbro/lkr012
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    1. Asli Demirgüç-Kunt & Luis Servén, 2010. "Are All the Sacred Cows Dead? Implications of the Financial Crisis for Macro- and Financial Policies," World Bank Research Observer, World Bank Group, vol. 25(1), pages 91-124, February.
    2. Asli Demirgüç-Kunt & Ross Levine, 2008. "Finance, Financial Sector Policies, and Long-Run Growth," World Bank Publications, The World Bank, number 28021.
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