Why reform is needed
Modern insolvency systems and debtor-creditor regimes are the cornerstone of sustainable economic development and provide a safety valve for financial failures. Predictable insolvency regimes encourage creditors to cooperate with each other and to work with debtors to avoid the closure of a business, rather than opportunistically withdrawing credit and seizing assets at the first hint of financial distress. Strong insolvency laws promote the distribution, re-distribution and use of assets from failed businesses more efficiently, effectively and equitably. In many transition countries in central and eastern Europe and the former Soviet Union, further legal reform and technical assistance are needed to improve rules and procedures to reach international standards of best practice.
The coronavirus related economic crisis has highlighted the importance of insolvency systems that enable viable but struggling businesses to restructure their financial liabilities. In many countries, however, insolvency systems are used primarily for liquidation. We have launched an assessment on business reorganisation tools to identify where reform is most needed.
The LTP's role
The EBRD helps countries to revise their insolvency laws and implementation frameworks. There is increasing recognition that the efficiency of insolvency regimes depends as much as on the quality of institutions, such as the judiciary, insolvency administrators and professional organisations for insolvency practitioners, as on the legal provisions.
Domestic insolvency laws will vary and must do so to accommodate the rich variety of legal traditions across the EBRD regions of operations. But these insolvency laws need to comply with the core principles of international standards and best practices as external actors are most likely to apply these when determining whether or not to invest in a given country. To help guide reform efforts, the EBRD has developed Core Principles of an Effective Insolvency System and Principles for an Effective Professional and Regulatory Framework for Insolvency Office Holders. See further details on these EBRD insolvency principles and other important international insolvency standards.