The Modular Approach to Micro, Small, and Medium Enterprise Insolvency

Davis, Ronald B.; Madaus, Stephan; Mazzoni, Alberto; Mevorach, Irit; Mokal, Riz; Romaine, Barbara; Sarra, Janis; Tirado, Ignacio

doi:10.2139/ssrn.2904858

Cited by 6 publications

(5 citation statements)

References 1 publication

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“…On the other hand, CCs have a full-fledged cram down mechanism, both intra-and cross-class, 10 and provisions allowing to terminate contracts, but commencing a CC impacts immediately on the debtor's credit relationship and puts the debtor at a serious risk of insolvent liquidation if something in the procedure does not go smooth. 11 It is possible 7 The costs associated with accessing insolvency proceedings may be particularly high in case of small-and medium-size businesses (Davis et al, 2016 11 Among the consequences of filing for a CC are various serious risks, apart from the automatic freezing of credit lines and a negative impact on reputation: the court-appointed insolvency practitioner can prove hostile (a quite common occurrence); the public prosecutor, to whom the petition must be notified, could take an active stance and file for involuntary liquidation; assets must be sold via public auctions; the debtor is subject to competing offers; the debtor must disclose possible civil liabilities of directors and officers; directors, officers and statutory auditors are subject, in case of malfeasance, to the same sort of draconian criminal liability that applies to firms in insolvent liquidation.…”

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confidence: 99%

Business Continuity in Times of Distress: Debt Restructuring Agreements and Compositions with Creditors in Italy

et al. 2020

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The Italian insolvency framework makes several restructuring tools available to firms and their creditors, so that distress does not necessarily lead to liquidation. This paper analyses two such instruments: debt restructuring agreements (DRAs) and compositions with creditors (CCs), both commonly used to reorganize distressed firms and preserve their continuity. These procedures typically involve large firms, particularly in the case of DRAs where judicial control over negotiations is milder. Firms using DRAs are in less critical economic conditions when they file for restructuring, but they do so after longer periods of distress. Despite their declared aim, the effectiveness of these instruments in terms of business continuity is limited: many firms that use them end up exiting the market, in particular in DRAs. Firms that survive display only partial recovery, which is relatively more intense in CCs. However, the apparently superior performance of CCs is overshadowed by the long duration of restructuring, which may prevent us from observing definitive outcomes.

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confidence: 99%

Business Continuity in Times of Distress: Debt Restructuring Agreements and Compositions with Creditors in Italy

et al. 2020

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“…77 MSMEs are vital to virtually all global economies and account for the majority of global employment. By way of example, the European Economic Area (EEA) has approximately 23 million MSMEs, generating EUR 3.9 trillion in value annually and employing 50 million people 78 and they accounted for 98% of all firms in the United States in 2022. 79 In the UK, they account for over 99% (5.7 million businesses) and provide 61% of all private sector employment.…”

Section: Msmesmentioning

confidence: 99%

Is insolvency stigmatised?

Ghio,

Thomson

2023

Intl Insolvency Rev

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It is a commonly held belief that there exists a sense of stigma around insolvency, which explains the low uptake of rescue procedures in the United Kingdom and around the world. We assess the accuracy of this claim through two qualitative studies. The first is conducted through interviews with corporate directors in the United Kingdom. The second study is a comparative literature review in selected jurisdictions. The literature review reveals a prominent stigma narrative in policy and legal texts, whereas the interview data reveal only moderate levels of stigma. Rather, they indicate that a lack of knowledge and understanding of insolvency (concept, law and procedures) may be a more powerful factor in explaining why corporate directors do not file for rescue procedures.

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“…Garrido (2012) argues that early debt restructuring is key to maximizing value for creditors and minimizing costs to the economy, especially for conflicts in family firms (Caputo et al, 2018). Davis et al (2016) emphasize the importance of early restructuring actions and tools (Dallocchio, Ferri, et al, 2022). These views are also reflected in the 2019 EU Directive, which introduced the concept of preventive restructuring, with an impact assessment by the European Commission (2016) highlighting the benefits of early restructuring for both viable businesses and creditors.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

The efficiency of preventive restructuring procedures: Evidence from France

Teti,

Tron,

Colantoni

et al. 2023

Strategic Change

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This article critically evaluates the effectiveness of the European Union's recent Directive on restructuring and insolvency law, specifically within the context of France, aimed at facilitating the restructuring of financially distressed firms within the Eurozone. Specifically, through the Kaplan–Meyer estimator and the log‐rank test, this research rigorously examines whether preventive restructurings surpass standard bankruptcy procedures in efficiency. The dataset under analysis is distinctly tailored, focusing on companies undergoing both types of restructuring procedures within the French jurisdiction. The study reveals that companies successfully undergoing a preventive restructuring procedure showcase higher survival rates, albeit coupled with weaker financial performances when compared to their counterparts undergoing the traditional bankruptcy process. This outcome challenges the prevalent assumption linking early‐stage restructuring with uniformly elevated survival rates and improved financial performance. A noteworthy concern stems from this observed trend, suggesting that the existence of discrete preventive restructuring procedures might inadvertently prolong the operational lifespan of financially inviable firms. This underscores the necessity for policymakers to meticulously craft preventive restructuring procedures, prioritizing debtor protection while proactively addressing the moral hazard predicament.

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The Modular Approach to Micro, Small, and Medium Enterprise Insolvency

Cited by 6 publications

References 1 publication

Business Continuity in Times of Distress: Debt Restructuring Agreements and Compositions with Creditors in Italy

Business Continuity in Times of Distress: Debt Restructuring Agreements and Compositions with Creditors in Italy

Is insolvency stigmatised?

The efficiency of preventive restructuring procedures: Evidence from France

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