Insolvency and Debt Restructuring: Assessments and Studies

Enforcement Study

The EBRD has led a study on the enforcement of business loans in Albania, Croatia, Cyprus, Greece and Ukraine. Each of the five jurisdictions selected for this study have high levels of non-performing loans, namely bank loans which have not been repaid or which are unlikely to be repaid in full by the debtor in the future. According to Vienna Intiative 2.0 research, the average corporate and retail NPL figures for 2017 reveal Ukraine to have the highest NPL ratio of these countries at 56.4%, followed by Greece at 47.2%, Cyprus at 43.1%, Albania at 14.8% and Croatia at 12.3%.  National authorities and policymakers (including recently the European Commission) have been considering ways in which the problem of high NPL levels in the banking sector can be managed, including changes to insolvency and enforcement frameworks.  This study is expected to contribute towards identifying main areas for reform to improve national enforcement frameworks.

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Account Blocking Study

The EBRD has completed a regional study of account blocking in four Western Balkan countries: Bosnia and Herzegovina, FYR Macedonia, Montenegro and Serbia. Account blocking – part of a system of debt recovery based on bills of exchange that is widespread in the Western Balkans – can have an extremely negative effect on debtors’ ability to pay creditors. Combined with cash sweeping, the practice triggers a race among creditors and denies businesses access to their bank accounts and working capital. This impedes efforts towards out-of-court restructuring and increases the likelihood of a viable firm in temporary financial distress going bankrupt and being liquidated. The study, which was funded by Luxembourg, assessed the impact of the cash sweeping and account blocking powers of bills of exchange in those countries on a corporate debtor’s ability to successfully restructure or reorganise its debts. The study has emphasised the importance of creating viable alternatives, in particular effective account pledge security and a financial collateral regime, that could gradually reduce reliance on bills of exchange as a form of quasi-security and enforcement mechanism.

Account Blocking Studies in Bosnia and Herzegovina, FYR Macedonia, Montenegro and Serbia.

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Insolvency Office Holder Assessment

In 2014 the EBRD completed a detailed assessment of the insolvency office holder (IOH) profession in 27 countries where it works that evaluates the profession’s state of development and performance. The assessment built on a previous initiative of the EBRD in establishing the EBRD Insolvency Office Holder PrinciplesThe aim of the assessment was to identify any shortcomings within the existing statutory framework for IOHs that need to be addressed.

Known variously as administrators, managers, liquidators or trustees, IOHs are central figures in collective insolvency proceedings. Such proceedings often require the total or partial divestment of the debtor’s management and the appointment of an IOH to administer or liquidate the assets of the debtor. The Assessment was first piloted in 2012 in seven countries (Bosnia and Herzegovina, Latvia, Poland, Romania, Russia, Serbia and Tunisia) before being rolled out to the remaining 20 countries (Albania, Belarus, Bulgaria, Croatia, Egypt, Estonia, FYR Macedonia, Georgia, Hungary, Kazakhstan, Kosovo, Kyrgyz Republic, Lithuania, Moldova, Montenegro, Morocco, Slovak Republic, Slovenia, Turkey and Ukraine) in 2013 to 2014.

The EBRD published a full report of the Insolvency Office Holder Assessment in 2014. Individual country profiles for all 27 countries covered by the Assessment were published on-line and updated in 2016.

The assessment has highlighted the importance of IOHs in national insolvency systems.  It has also been a useful tool for EBRD technical assistance aimed at strengthening the regulation of IOHs in Croatia, Cyprus and Greece.