Vol 14 (2017) - Issue 2

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Corporate Rescue in Developing Countries: ‘One Size Fits All’?

Introduction
The last decades have been characterised by rapid global economic developments; credit has globally become more easily accessible for companies. These developments have raised questions about the legal structure that governs the situation in which one is not able to repay the acquired debts. The realisation grew that many insolvency structures were in need of a renewal in order to be able to profit from the advantages the economic developments have to offer. Corporate insolvency is the condition in which a legal entity, not being a natural person, is no longer able to pay its debts. Until the millennium, even in more developed parts of the world, insolvent liquidation was then the only option. A liquidation procedure induces a dissolution and thus a (whether or not temporary) disappearance of the company. Since corporate insolvency does not necessarily mean that a company is not viable, important global developments have been made in the last decades to avoid throwing out the baby with the bathwater. The overarching term of these various attempts is 'corporate rescue'. This term has been defined as 'the revival of companies on the brink of economic collapse and the salvage of economically viable units to restore production capacity, employment and the continued rewarding of capital and investment'.
According to the World Bank, an effective insolvency system should march with the state’s broader legal and commercial systems. Second, it should maximise value of the assets of the debtor-company and recovery by creditors. Third, it should offer an effective liquidation process for non-viable businesses and reorganisation of viable businesses if this will lead to a higher return to creditors. Fourth, a proper balance must be made between liquidation and reorganisation, and the system must provide for an easy switch between these two options. Fifth, similarly situated creditors, foreign or domestic, must be equally treated. Sixth, there must be an efficient, timely and fair resolution of insolvencies. Seventh, an improper use of the insolvency system must be prevented. Eighth, 'asset grabbing' by individual creditors out of the insolvent estate must be avoided. Ninth, the system must provide a clear procedure when it comes to risk allocation, incentives for gathering and dispensing information. Tenth, existing creditor rights must be recognised and priority of claims must be predictable and respected. Eleventh, the system must contain a framework of cross-border insolvency, which contains recognition of foreign proceedings.