Court-Supervised Restructuring: Pre-Bankruptcy Dynamics, Debt Structure and Debt Rescheduling

Abstract:     
We analyze the debt dynamics of corporations that reorganize under Belgian court-supervised restructuring, using a unique sample of small corporations. Small firms systematically accumulate unsecured trade credit and unpaid taxes and social contributions in the running up to bankruptcy-reorganization. First, small firms accumulate overdue taxes and social contributions, pushing the government administration in the unintended role of lender of last resort during the pre-bankruptcy period. Second, we find that the pecking order theory and specific trade credit theories predict the levels of trade credit accumulated during the pre-bankruptcy period very well. Our findings suggest that pre-bankruptcy dynamics strongly affect the debt structure at the moment of initiation of the procedure and in this way the ultimate outcome of the restructuring process.

Number of Pages in PDF File: 44

Keywords: court-supervised reorganization, bankruptcy, insolvency regulation

JEL Classification: G33, G38, K20

working papers series