Building Legal Indexes to Explain Recovery Rates: An Analysis of the French and UK Bankruptcy Codes

30 Pages Posted: 19 Sep 2012

See all articles by Régis Blazy

Régis Blazy

University of Strasbourg

Bertrand Chopard

University of Angers - Bureau of Economic Theory and Application (BETA)

Nirjhar Nigam

ICN BUSINESS SCHOOL

Multiple version iconThere are 3 versions of this paper

Date Written: June 7, 2012

Abstract

We test the characteristics of bankruptcy procedures that are likely to generate recoveries for the creditors. We build 132 original legal indexes accounting for the main functions of bankruptcy law that were highlighted by Hart (2000). Namely, we measure the accessibility of the procedure, their ability to disclose information, the level of protection of the debtor’s assets, the coordination of the claimants and their decision power under bankruptcy, and the sanction of faulty management. We show that the French procedures are more protective of the debtor’s assets and favor more the coordination of claims. In UK, we find strong opposition between the liquidation and the reorganization procedures: the former ones prioritize the protection of secured claims, while unsecured creditors benefit from higher decision power under the latter ones. We then use an original database of 833 French and UK bankrupt SMEs to measure the recovery rates that are generated by each procedure. We first isolate the bankruptcy rules that are associated to higher recovery rates: namely, accessibility of the procedure, protection of the debtor’s assets, protection and coordination of claims. On the contrary, information disclosure under bankruptcy has negative impact on total recoveries, probably due to the breach in confidentiality.

Keywords: Bankruptcy, Recoveries, Legal indexes

JEL Classification: G33, K22

Suggested Citation

Blazy, Régis and Chopard, Bertrand and Nigam, Nirjhar, Building Legal Indexes to Explain Recovery Rates: An Analysis of the French and UK Bankruptcy Codes (June 7, 2012). 29th International Conference of the French Finance Association (AFFI) 2012, Available at SSRN: https://ssrn.com/abstract=2079660 or http://dx.doi.org/10.2139/ssrn.2079660

Régis Blazy (Contact Author)

University of Strasbourg ( email )

61, avenue de la foret noire
Strasbourg, Alsace 3000
France

Bertrand Chopard

University of Angers - Bureau of Economic Theory and Application (BETA) ( email )

13, Place Carnot
Strasbourg, 67000
France

Nirjhar Nigam

ICN BUSINESS SCHOOL ( email )

13 rue Michel Ney
Nancy, 54000
France

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