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Commercial Bankruptcy and Financial Reorganization in Canada

Author

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  • Jocelyn Martel

Abstract

The paper examines a micro data set of 417 commercial bankruptcies and 393 financial reorganizations field in Canada during the period 1977-87. Descriptive statistics from the data are used to characterize the0501n features of the bankruptcy process in Canada. Firms in bankruptcy or in reorganization are typically small firms; the former being significantly smaller than the latter. The data shows that firms in bankruptcy are in significantly worse financial condition than firms in reorganization. Finally, the Canadian bankruptcy process is efficient in offering a rapid solution to financial distress. However, the data confirms the view that bankruptcy imposes substantial losses to creditors. Ce document poursuit deux objectifs. Premièrement, il présente les caractéristiques financières des entreprises en faillite et en réorganisation sous la Loi sur la faillite au Canada. Deuxièmement, il offre un aperçu du fonctionnement du système de faillite canadien. L'analyse de la situation financière d'un échantillon de 810 entreprises insolvables qui ont eu recours à la loi au cours de la période 1977-1987 révèle que la très grande majorité de ces entreprises sont de petite taille : 99 % des entreprises en faillite et 72 % des entreprises en réorganisation ont une valeur au livre des actifs inférieure à un million de dollars. Les créances ordinaires (fournisseurs de biens et services) représentent le poste le plus important en proportion des créances totales des entreprises. Suivent dans l'ordre les créances garanties (banques) et les créances privilégiées (gouvernement, etc.). De façon générale, la situation financière des entreprises en faillite est des plus critiques au moment de l'échec alors que celle des entreprises en réorganisation se veut relativement plus saine. Ceci se traduit par des pertes importantes pour les créanciers lors de la faillite. En ce qui a trait à son fonctionnement, le système de faillite canadien offre une solution rapide aux entreprises en difficultés financières. En particulier, 84 % des propositions de réorganisation sont soumis à l'approbation des créanciers en deça d'un délai de 60 jours.

Suggested Citation

  • Jocelyn Martel, 1994. "Commercial Bankruptcy and Financial Reorganization in Canada," CIRANO Papers 94c-02, CIRANO.
    • Handle: RePEc:cir:circah:94c-02
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    File URL: https://cirano.qc.ca/files/publications/94c-02.pdf
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    References listed on IDEAS

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    1. Fisher, Timothy C G & Martel, Jocelyn, 1995. "The Creditors' Financial Reorganization Decision: New Evidence from Canadian Data," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 11(1), pages 112-126, April.
    2. Warner, Jerold B, 1977. "Bankruptcy Costs: Some Evidence," Journal of Finance, American Finance Association, vol. 32(2), pages 337-347, May.
    3. Gilson, Stuart C. & John, Kose & Lang, Larry H. P., 1990. "Troubled debt restructurings*1: An empirical study of private reorganization of firms in default," Journal of Financial Economics, Elsevier, vol. 27(2), pages 315-353, October.
    4. Jocelyn Martel, 1991. "Bankruptcy Law and the Canadian Experience: An Economic Appraisal," Canadian Public Policy, University of Toronto Press, vol. 17(1), pages 52-63, March.
    5. Ang, James S & Chua, Jess H & McConnell, John J, 1982. "The Administrative Costs of Corporate Bankruptcy: A Note," Journal of Finance, American Finance Association, vol. 37(1), pages 219-226, March.
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    Cited by:

    1. T. C.G. Fisher & J. Martel, 2000. "The Bankruptcy Decision : Empirical Evidence from Canada," Thema Working Papers 2000-47, THEMA (Théorie Economique, Modélisation et Applications), CY Cergy-Paris University, ESSEC and CNRS.
    2. Jocelyn Martel, 1996. "Solutions au stress financier," L'Actualité Economique, Société Canadienne de Science Economique, vol. 72(1), pages 51-78.
    3. Jocelyn Martel, 1996. "Impact anticipé de la réforme à la loi sur la faillite," L'Actualité Economique, Société Canadienne de Science Economique, vol. 72(4), pages 417-432.
    4. Gilles Recasens, 2003. "Faut-il adopter un système pro-créanciers de défaillances? Une revue de la littérature," Revue Finance Contrôle Stratégie, revues.org, vol. 6(1), pages 119-153, March.
    5. Fisher, Timothy C G & Martel, Jocelyn, 1995. "The Creditors' Financial Reorganization Decision: New Evidence from Canadian Data," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 11(1), pages 112-126, April.
    6. Jocelyn Martel, 1996. "Solutions au stress financier : Un survol de la littérature," CIRANO Working Papers 96s-03, CIRANO.
    7. Timothy C.G. Fisher & Jocelyn Martel, 2004. "Empirical Estimates of Filtering Failure in Court‐Supervised Reorganization," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 1(1), pages 143-164, March.
    8. Fisher, Timothy C G & Martel, Jocelyn, 1999. "Should We Abolish Chapter 11? Evidence from Canada," The Journal of Legal Studies, University of Chicago Press, vol. 28(1), pages 233-257, January.
    9. T. C. G. Fisher & J. Martel, 2001. "On Direct Bankruptcy Costs and Firm's Bankruptcy Decision," Thema Working Papers 2001-02, THEMA (Théorie Economique, Modélisation et Applications), CY Cergy-Paris University, ESSEC and CNRS.

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    Keywords

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    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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