Resolving Insolvency

Resolving Insolvency
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Doing Business studied the time, cost and outcome of insolvency proceedings involving domestic legal entities. These variables were used to calculate the recovery rate, which was recorded as cents on the dollar recovered by secured creditors through reorganization, liquidation or debt enforcement (foreclosure or receivership) proceedings. To determine the present value of the amount recovered by creditors, Doing Business used the lending rates from the International Monetary Fund, supplemented with data from central banks and the Economist Intelligence Unit. The most recent round of data collection for the project was completed in May 2019. See the methodology and video for more information.
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  DOING BUSINESS SCORE
  
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  WHAT IS MEASURED
  
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  WHY IT MATTERS
  
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  DB REFORMS
  
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  GOOD PRACTICES
  
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  FAQ
  
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  OTHER RESOURCES
  

Good practices
- Streamlining insolvency proceedings
- Establishing or clarifying rules for commencing insolvency proceedings
- Establishing effective reorganization proceedings
- Promoting creditor participation
- Improving provisions applicable to treatment of contracts and voidable transactions
- Introducing provisions on post-commencement financing
- Regulating the profession of insolvency administrators
Changes in insolvency regimes over the years—whether motivated by economic or financial crises or implemented as part of broader judicial or legal reforms—have led to the emergence of several trends and good practices. Among these is a unified international good-practice standard on creditor and debtor regimes and insolvency set forth by the World Bank and the United Nations Commission on International Trade Law (UNCITRAL). Good practices in many economies are aimed at improving both the efficiency and the outcome of insolvency proceedings. These include streamlining insolvency proceedings, establishing effective reorganization proceedings and promoting creditor participation in the proceedings.
Streamlining insolvency proceedings 
Establishing time limits for proceedings can enhance the efficiency of the insolvency process. Long proceedings reduce creditors’ chances of recovering outstanding debt and can create unnecessary uncertainty for all parties involved.¹ Efficient insolvency proceedings increase debt recovery by creditors by making it more difficult for the shareholders of a company to sell its assets at an unreasonably low price to a second company they own.
Many economies focus their reform efforts on improving the efficiency of insolvency proceedings. For example, in an insolvency law adopted in 2016, India introduced the option of reorganization for commerical entities and clarified and streamlined all provisions related to liquidation. The law introduced time limits and facilitated continuation of the debtor's business during insolvency proceedings. As more newly filed cases fell under the new legislation, this initiative has had a positive impact in the procedure, time, as well as in the outcome of insolvency cases as the majority of practitioners would resort to reorganization in a case measured by Doing Business. Consequently, Doing Business 2020 recognized that India made resolving insolvency easier by making reorganization the most likely in-court proceeding for insolvent companies.