Can Bankruptcy Codes Create Value? Evidence from Creditors' Recoveries in France, Germany, and the UK

Abstract

The aim of this paper is to provide new evidence on the value-creation process taking place in bankruptcy procedures that belong to different legal systems (French civil law, German civil law, and common law): to do so, we assess to which extent the debtor's value can be preserved under bankruptcy by analyzing the recovery rates in France, Germany, and the United Kingdom. We use a unique European sample of 900 corporate bankruptcy files that were manually collected in commercial courts on the period 1993-2005. We also contribute to the literature by considering the recovery rates on the various classes of claimants (senior claims, junior claims, and new money) for each bankruptcy procedure. Our main conclusions are: (a) France and Germany show quite similar global recovery rates which are greater than in the UK, (b) when controlling for the quality of assets at the beginning of the procedure and for the structure of claims, we observe that recovery rates are not significantly different between France and the UK, while they remain greater for German companies, (c) Germany has the greatest recovery rates for senior and junior creditors, (d) the reorganization procedure and the liquidation procedure leading to the highest global recovery rate are, respectively, the French continuation and the German liquidation.JEL Codes: G33.

When secured and unsecured creditors recover the same: The emblematic case of the Tunisian corporate bankruptcies

“…However, this figure hides huge discrepancy between the various outcomes: on average, while the reorganization procedures lead to substantial recoveries (50%), the liquidation ones are associated to poor levels of repayments (12%). This latter figure is much lower than the corresponding ones found on the French and the German liquidation procedures (between 20% and 21% according to Blazy, Petey and Weill, 2010). More importantly, the "efficiency" of a procedure cannot be restricted to its sole ability to generate recoveries.…”

“…Those figures provide first elements of answer to our set of questions. Indeed, they can be usefully paralleled with previous works made on Europe that use comparable data (see Blazy, Petey, and Weill, 2010). In particular, Tunisia can be paralleled with France, as both bankruptcy systems present numerous similarities in terms of objectives and of general organization.…”

“…The average total recovery rate equals 22%, which is relatively high when compared to more developed countries. According to Blazy, Petey, and Weill (2010), in Europe, the same statistics lies between 13% (for the United Kingdom), and 21% (for France and Germany, equally). Thus, at first sight, the design of the Tunisian bankruptcy system seems good enough to protect the value of the claims.…”

Insolvency Regimes And Productivity Growth

“…A similar approach was used to coordinate workouts during the Asian crisis and more recently in Italy and France (Novarese, 2009;Lucheux and Pusch, 2009). (Davydenko and Franks, 2008;Blazy et al, 2010). 27 This creates a bias toward restructuring, over liquidation, which can adversely affect productivity by: i) weakening market selection in the event that non-viable firms are kept on life support; ii) stifling productivity-enhancing reallocation across firms; and iii) choosing an internal restructuring strategy that is less likely to deliver future within-firm productivity gains.…”

Valoración económica de la eficiencia de los sistemas concursales: un análisis empírico internacional

“…Esto hace que resulte complejo armonizar las actuaciones, no sólo para evitar efectos compensatorios entre la efi ciencia ex ante y ex post, que son los más analizados, sino también con los efectos a priori para todas aquellas empresas con problemas de insolvencia antes de tener que realizar la declaración legal de su situación. (9) Además, el tipo de legislación concursal afecta a las tasas de recuperación dentro del procedimiento, lo que puede ser visto como una medida indirecta de la efi ciencia ex post del proceso(Blazy, Petey y Weill, 2009).…”