Every year, billions of dollars in business value, jobs, and capital are lost or sidelined as a result of businesses becoming insolvent and closing their doors. Ineffective debt recovery and weak mechanisms for business exit create a higher cost of capital and heightened perception of risk among investors and financial institutions.
Legal and regulatory frameworks that inhibit corporate restructuring prevent many viable businesses in financial distress from continuing as going concerns when they are in a state of insolvency. After the recent global financial crisis, governments around the globe have increasingly focused on strengthening their credit environments by, among other measures, improving their commercial insolvency regimes.
Well-functioning legal, regulatory, and institutional frameworks are crucial for commercial banks and companies to resolve non-performing loans, facilitate business exit as well as reorganization, settle commercial disputes, and collect debts. A systematic approach to debt resolution and insolvency thus strengthens the investment climate and advances economic growth.
What We Do
The Insolvency and Debt Resolution team of the World Bank Group assists governments in improving their credit environments through the development of more effective insolvency systems. This is achieved through international standard-setting, detailed diagnostics and technical assistance for implementation.
Our work helps to save viable businesses, while allowing failed businesses to "exit" the market efficiently and effectively. Ultimately, this increases the return to stakeholders (banks and other creditors) from non-performing loans, reduces dependency on the courts for debt recovery, and saves jobs through the preservation of "enterprise value" via restructuring.
We focus on three core activities:
The World Bank Group also provides technical assistance to countries interested in improving their debt resolution, insolvency, and alternative dispute resolution (ADR) systems, through advising governments on legislative and institutional reforms. Interventions include:
- Review of commercial insolvency regimes, including examination of the set of laws, regulations, institutions, and agencies that address the liquidation and restructuring of businesses.
- Review and development of personal insolvency regimes, including the related laws, regulations, institutions, and agencies.
- Review and development of the legal and regulatory framework for out-of-court dispute resolution (arbitration and mediation) and debt recovery.
- Process mappings, and advice on how to improve the institutional framework that implements the reforms.
- Capacity building through training, roundtable workshops, and peer-to-peer learning
Development of professional standards and regulations for licensing of insolvency and training and certification of mediation practitioners.
The Insolvency and Creditor/Debtor Initiative
- Under the ICR Initiative, the World Bank Group carries out its mandate as a global standard setter for ICR systems, together with the United Nations Commission on International Trade Law (UNCITRAL), as designated by the Financial Stability Board.
- The World Bank Principles for Effective Insolvency and Creditor/Debtor Regimes (the Principles), together with the UNCITRAL Legislative Guide on Insolvency, are the internationally recognized benchmarks for ICR and form the basis for the analysis conducted by the World Bank Group in the ICR Report on the Observance of Standards and Codes (ROSC).
- The ICR ROSC is conducted at the request of the recipient government and evaluates the strength of a country’s ICR laws and institutions. It provides an opportunity for countries to evaluate provisions in their laws addressing debtor/creditor rights, legal and institutional frameworks, and informal corporate work-outs and restructurings. The World Bank Group ICR Task Force meets periodically to consider revisions to the Principles.
Research and Knowledge
We also work to advance knowledge in the area of insolvency and debt resolution through the dissemination of best practices, engaging in research and convening conferences and workshops. Our work in this area includes:
- Designing and drafting manuals for judges, insolvency practitioners and alternate dispute resolution practitioners.
- Conducting cutting edge collaborative research on the economic impact of insolvency and ADR reform.
- Organizing regional and international conferences/workshops on key insolvency and ADR trends and issues.
Programs & Events
The World Bank Group’s Insolvency and Debt Resolution team hosts, co-hosts, and participates in a variety of conferences, seminars, workshops and other events on a regular basis.
The following are featured events in which the Insolvency and Debt Resolution team is involved:
- The Africa Round Table on Insolvency Reform (ART) brings together experts and officials from African countries to discuss featured insolvency topics in a cooperative and practical manner. Recent topics featured at ART include the role of insolvency proceedings in the growth of micro, small and medium enterprises, and how to use insolvency regimes to foster job growth. The event is co-organized by the World Bank Group and INSOL International.
- The Forum for Asian Insolvency Reform (FAIR) is an organization that hosts events that bring together stakeholders to discuss insolvency reform in Asia. The World Bank Group is a co-founder of FAIR. As the economies in Asian countries grow in global prominence, it becomes increasingly important that they create insolvency regimes that provide creditors with sufficient protection to encourage the lending of capital. Publications and information from previous meetings can be found here.