Insolvency and Debt Restructuring


When the process of transition to a market economy started in Central and Eastern Europe, insolvency systems served principally as a conduit to filter public assets to the private sector. Generally, this was done inefficiently and without appropriate institutional and regulatory framework.

Substantial reform efforts have since contributed in the EBRD region to improvements in insolvency practice. Nevertheless, while liquidation has improved in many countries, the availability of reorganisation in insolvency proceedings aimed at enabling businesses in financial difficulties to continue in whole or in part remains weak. Many countries also lack a developed out-of-court debt restructuring culture and rules or guidelines for creditor cooperation on restructurings either do not exist or are not followed in practice.

Why technical assistance is needed

The 2008 financial crisis and its aftermath highlighted deficiencies in national insolvency frameworks and the importance of insolvency systems and effective debt restructuring regimes as a safety valve for financial failure.  Many countries have sought to introduce reforms in response to the crisis but often these reforms have not addressed the problems fully and implementation of the law remains weak.  The EBRD believes that a modern insolvency system which fairly balances debtor and creditor interests is essential for a sound investment climate.  In particular:

  • Insolvency regimes should encourage a controlled solution to a debtor’s financial difficulties, providing clear and reliable routes towards early reorganisation or liquidation for both creditors and debtors.

  • Insolvency frameworks should focus on early action and efficiency to reduce commercial uncertainty, maximise value for creditors, employees, owners and the economy as a whole and enable the continuation of any viable parts of the debtor’s business.

  • Management and owners of debtors in financial distress should be required to cooperate with creditors at an early stage and share all relevant information, while creditors should 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.

  • National authorities should invest in building the capacity of judges and the court system which oversees insolvency processes in most EBRD countries of operations and the capacity of insolvency office holders, who are typically charged with management and/or oversight of an insolvent debtor. 

  • A culture of creditor cooperation in debt restructuring outside of insolvency proceedings which is based on enlightened collective self-interest should be encouraged to help avoid destructive insolvency proceedings and preserve value.

The EBRD's role

The EBRD supports transition countries to revise their insolvency laws and implementation framework.

The EBRD has worked on a wide variety of projects with countries of operations, including proposed reforms to Armenia’s 2016 Bankruptcy Law and Tax Code, recommendations to Greece, Croatia, Cyprus and Tunisia on strengthening the regulatory framework for insolvency office holders, assessments of obstacles to the resolution (and enforcement) of non-performing loans in Hungary, Mongolia and Serbia, a recommendation on debt restructuring by the Hungarian Central Bank, implementation of Ukraine’s Law on Financial Restructuring and alignment of Kosovo’s Banking Law with the European Commission Banking Recovery and Resolution Directive, 

Insolvency Law Regime Core Principles

Domestic insolvency laws will vary and must do so to accommodate the rich variety of legal traditions across the EBRD region. But these 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. This has led the EBRD to define a set of 10 core principles.

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