Measuring the Attractiveness of Your Country – Resolving Insolvency – Part 13
“Keeping viable businesses operating is among the most important goals of bankruptcy systems.…A firm suffering from bad management choices or a temporary economic downturn may still be turned around. When it is, all stakeholders benefit. Creditors can recover a larger part of their investment, more employees keep their jobs, and the network of suppliers and customers is preserved.…If in a case of bankruptcy creditors can recover most of their investments, they can keep reinvesting in viable firms, improving companies’ access to credit. Similarly, if a bankruptcy regime respects the absolute priority of claims, this allows secured creditors to continue lending and maintains confidence in the bankruptcy system.”
Due to the proximity to the justice management system,allIT-related proposals and references above apply. The better the system, the faster cases can be processed and the sooner investments can be recovered and reinvested. More can be derived from these measures.
Consider the recovery rate that calculates how many cents on the dollar claimants (creditors, tax authorities, and employees) recover from an insolvent firm. Interesting from IT’s angle: economies with less efficient and more costly insolvency procedures generally have lower recovery rates. If efficiency and cost are the measures,the named SAP application would allow a higher recovery rate.
Consider the average cost of bankruptcy proceedings. The cost of the proceedings is recorded as a percentage of the estate’s value. Lower bankruptcy costs can help keep efficient firms in existence while simultaneously encouraging the creation of new firms and promoting healthy competition in the economy. The cost of proceedings could be calculated in real time by an integrated solution from SAP.
Consider the average time to close an insolvent business. Information is collected on the sequence of procedures and on whether any procedures can be carried out simultaneously. The efficiency and effectiveness of processes are strongly determined by information technology as well: so we see a big potential to adapt the case management systems and analytics from the justice area to the special needs of insolvency cases.
An enhancement could be seen in the call for creditors’ committees to increase creditors’ say in bankruptcy proceedings. “In some cases creditors participate in the preparation of a reorganization plan or determine the fees of the insolvency administrator.” (source: http://http://www.doingbusiness.org/data/exploretopics/resolving-insolvency )
From an IT point of view, this participation could be mirrored in the provision of data and documents to support this involvement in the decision process proactively. In fact, this is not too far away from a portal for investor protection –making already established modules reusable.