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The major thrust of insolvency reform across many jurisdictions over the last twenty years has been the development of legislation to facilitate business reorganizations. Any regime which involves rescue requires a degree of support from the commercial environment. That is, the continuation of a business in the shadow of insolvency will probably require some additional funding and at the very least require existing creditors to postpone and/or compromise their claims. The rescue regimes may therefore be severely tested in situations where there is a general economic downturn such as the world has experienced in the last two years. Somewhat paradoxically it can be that just when rescue is needed the most, the practical reality may be that businesses will not be saved if there is insufficient support available either by way of additional credit or because other creditors are so financially stressed themselves that they are unable or unwilling to support any potential rescue.This survey evaluates empirically the perceived impact of the Global Financial Crisis on the opportunities for rescue. We did not come across any empirical research performed using the aggregate know-how of the professionals involved in the rescue business internationally. Therefore, INSOL decided to undertake a survey of insolvency professionals across the world through its membership, in collaboration with INSOL Academics Group. 562 insolvency professionals from 56 jurisdictions worldwide (mostly from the UK, Australia, Canada, Netherlands, USA, New Zealand, Hong Kong, South Africa, Germany and India) responded to the survey. The vast majority of the interviewed insolvency professionals agree that the credit crisis of 2007 stifled the access of distressed business to financial facilities so needed for successful restructuring. This accord holds across legal systems, continents, countries or professional experience of the respondents. The implication is clear: the financial crisis retrenched the access to financial facilities and thus impacted negatively the prospects for preventing or even ending the bankruptcy procedure with reorganization instead of winding up of the estate assets. Several reasons have been pointed out by the insolvency professionals:• First, there is the objective decrease of cheap and liquid financial resources. The traditional funders of distressed business – banks and hedge funds – are in financial troubles themselves and apply more selective and cautious risk management rules.• It has also been recognized that the banks nowadays operate under more rigid public policies and the political and public expectations are for prudency and restraint. Financing of restructuring is objectively a source of high risk and on the one hand, the insolvency representatives see in their practices that the banks do not welcome this risk.• On the other hand, the insolvency professionals also think that the banks are overly risk aversive and eager to show constraint. Some of the respondents even think that as the bankers failed to recognize the symptoms of the credit crunch, they nowadays have become short-sighted to recognize the long term interests of their clients. |
