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This study provides a conceptual framework for the analysis of the questions of out-of-court debt restructuring from a policy-oriented perspective. The starting point of the analysis is given by the World Bank principles for effective insolvency and creditor rights systems. The study offers an overview of out-of-court restructuring, which is not seen as fundamentally opposed to formal insolvency procedures. Actually, the study contemplates different restructuring techniques as forming a continuum to the treatment of financial difficulties. The study discusses the advantages and disadvantages of all the debt restructuring techniques, and concludes, in this regard, that a legal system may contain a number of options a menu that can cover different sets of circumstances. In the end, the law may offer a toolbox with very different instruments that the parties may use depending on the specific facts of the case. The study also provides a checklist that can be used to examine the features of a legal system that bear a direct influence on debt restructuring activities.

Creditor Protection and Credit Response to Shocks Arturo Jose Galindo and Alejandro Micco This article studies the relationship between creditor protection and credit responses to macroeconomic shocks. Using a data set on legal determinants of finance in a panel of data on aggregate credit growth for 79 countries during 1990 2004, it is shown that credit is more responsive to external shocks in countries with weak legal creditor protection and weak enforcement. The results are statistically and economically significant and robust to alternative measures of creditor protection, to the inclusion of variables that reflect different stages of economic development, to the restriction of the sample to only developing economies, to the controls for systemic crises, to alternative shock measures, and to vector autoregressive specifications. One strand of the literature has shown that an institutional setup that adequately protects creditor rights (CR) can align the incentives of debtors and lenders, increase the expected payoffs of lending, and deepen financial markets. Source: Authors' analysis is based on the data noted in table A-1. Panel a shows how the development of credit markets (as measured by the ratio of credit to the private sector supplied by the financial sector to GDP) is strongly related to a measure of legal protection to creditors: an index of effective creditor rights (ECR) protection that combines legal protection to creditors and their enforcement (higher values indicate stronger protection). Panel data on aggregate credit growth for 79 countries during 1990 2004 support the claim that better legal protections significantly reduce the sensitivity of credit to shocks. Rather than exploring the impact of shocks on output under different scenarios of financial development, it explores the impact of shocks on financial markets, under different institutional setups. Controlling For Systemic Banking Crises And Financial Liberalization Dependent variable: D log(Credit/GDP) (1) External shock External shock* ECR External shock* CL External shock* developed Systemic crisis dummy variable Financial liberalization 1 Financial liberalization 2 Number of observations Number of countries Country-fixed effects Year-fixed effects R-squared Sample 5.656 (1.395)*** 0.665 (0.229)*** -- 21.035 (1.824) 20.062 (0.016)*** -- -- 1.022 79 Yes Yes 0.16 (2) 6.804 (1.663)*** -- 23.198 These results are robust to alternative measures of creditor protection, to the inclusion of variables that reflect different stages of economic development, to the restriction of the sample to developing economies, to controlling for systemic crises and financial liberalization, to alternative shock measures, to possible asymmetric responses, and to vector autoregression dynamic specifications.

This paper builds a model of a sovereign borrower that has access to credit from private sector creditors and an IFI. Private sector creditors and the IFI offer different debt contracts that are modelled based on the institutional frameworks of these two types of debt. We analyze the decisions of a sovereign on how to allocate its borrowing needs between these two types of creditors, and when to default on its debt to the private sector creditor. The numerical analysis shows that, consistent with the data; the model predicts countercyclical IFI debt along with procyclical commercial debt flows, also matching other features of the data such as frequency of IFI borrowing and mean IFI debt stock.

\"Bankrupts and Usurers of Imperial Russia explores the culture of money and credit in imperial Russia through the eyes of ordinary individuals. Moving beyond the stereotypes of wasteful nobles, backward merchants, and ruthless moneylenders, this study recreates the daily tangle of motivations, practices, and disputes that preceded and underpinned Russia's \"great reforms\" of the mid-nineteenth century. Sergei Antonov uses close readings of previously unexamined legal cases to argue that Russian courts, despite their many shortcomings, provided a reasonably efficient forum for defining, promoting, and protecting private property interests. At the same time, debt cases reveal beliefs and attitudes shared by members of various classes and legal estates into which Russia's population was officially divided, and indicate the existence of a single, although amorphous, propertied class previously assumed to be absent in pre-revolutionary Russia\"-- Provided by publisher.

Research summary: Integrating the behavioral and institutional perspectives, we propose that a country's formal institutions, particularly its legal frameworks, affect managers' deployment of slack resources. Specifically, we explore the moderating effects of creditor and employee rights on the performance effects of slack. Using longitudinal data from 162,633 European private firms in 26 countries, we find that financial slack enhances firm performance at diminishing rates, whereas human resource (HR) slack lowers performance at diminishing rates. However, financial slack has a more positive effect on firm performance in countries with weaker creditor rights, whereas HR slack has a more negative effect on performance in countries with stronger employee rights. The results provide a richer view of the relationship between slack and firm performance than currently assumed in the literature. Managerial summary: A key dilemma managers often encounter is whether, on the one hand, they should build in excess resources to buffer their firms from internal and external shocks and to pursue new opportunities or whether, on the other hand, they should develop \"lean\" firms. Our study suggests that excess cash resources—which are usually viewed as easy to redeploy—benefit firm performance, especially when firms operate in countries with weaker creditor rights. However, excess human resources—which are usually viewed as more difficult to redeploy—hamper firm performance, particularly when firms operate in countries with stronger labor protection laws. Thus, the management of slack resources critically depends on the characteristics of these resources (e.g., redeployability) and the institutional context in which managers operate.

How does cooperation emerge in a condition of international anarchy? Michael Tomz sheds new light on this fundamental question through a study of international debt across three centuries. Tomz develops a reputational theory of cooperation between sovereign governments and foreign investors. He explains how governments acquire reputations in the eyes of investors, and argues that concerns about reputation sustain international lending and repayment. Tomz's theory generates novel predictions about the dynamics of cooperation: how investors treat first-time borrowers, how access to credit evolves as debtors become more seasoned, and how countries ascend and descend the reputational ladder by acting contrary to investors' expectations. Tomz systematically tests his theory and the leading alternatives across three centuries of financial history. His remarkable data, gathered from archives in nine countries, cover all sovereign borrowers. He deftly combines statistical methods, case studies, and content analysis to scrutinize theories from as many angles as possible. Tomz finds strong support for his reputational theory while challenging prevailing views about sovereign debt. His pathbreaking study shows that, across the centuries, reputations have guided lending and repayment in consistent ways. Moreover, Tomz uncovers surprisingly little evidence of punitive enforcement strategies. Creditors have not compelled borrowers to repay by threatening military retaliation, imposing trade sanctions, or colluding to deprive defaulters of future loans. He concludes by highlighting the implications of his reputational logic for areas beyond sovereign debt, further advancing our understanding of the puzzle of cooperation under anarchy.

Directors are statutorily enabled to enter transactions on behalf of the company, including contracting with creditors. The contracts executed by the directors are generally binding on the company and not on the directors as such, even as the directors who are the custodians of the company’s assets and powers are by law mandated to preserve the sanctity of such contracts. The creditors, who are mostly investors, rely on the business skills and integrity of the directors to realise the expected returns on their investment. The reliance of creditors on directors, whose business decisions they are unable to influence, highlights the vulnerability of creditors’ interests. The quest to protect creditors’ interests galvanises the need to impose enforceable duties on directors to consider creditors’ interests while conducting the company’s affairs. But such duties are not generally expressed in the same light as the duties owed by the directors to the company. This article, through a doctrinal comparative analysis focusing on South Africa, Lesotho, and the United Kingdom, explores when the law considers the directors’ obligation to protect the interests of creditors as an integral part of the directors’ responsibility to promote the interests of the company in the ordinary course of discharging their managerial responsibilities.