Resolving insolvency : the challenges of successfully implementing insolvency reforms

Access to finance is key to the development of the private sector. Lenders need tools to assess not only the risk of non-repayment but also what happens if a debtor cannot repay debts as they mature. A good insolvency framework - one with clear rules, that efficiently rehabilitates viable companies and liquidates non-viable ones - provides entrepreneurs and lenders with tools to evaluate the consequences of a worst-case scenario. Providing corporate debtors with the option to reorganize increases the chances of debt recovery by creditors, positively influencing their willingness to lend. The availability of reorganization procedures also increases the likelihood that viable firms will continue operating despite financial difficulties, thus decreasing the failure rate of firms, preserving jobs, and encouraging entrepreneurship.