Document Type

Article

Disciplines

International Law

Abstract

Insolvency reform seems to be in vogue. Over the past several years, a number of advanced industrial countries have introduced-or are considering introducingsignificant changes in the framework governing the liquidation or rehabilitation of enterprises.' For many emerging market economies, reform in this area has become a central component of their economic reform programs.2 Moreover, in addition to providing financial and technical support for these programs, multilateral financial institutions such as the International Monetary Fund ("IMF") and the World Bank are also devoting considerable resources to the distillation of best practices in the area of corporate insolvency.3 Most recently, the United Nations Commission on International Trade Law, having successfully adopted a Model Law on CrossBorder Insolvency, has embarked on the ambitious project of producing a legislative guide to be relied upon in connection with the preparation of domestic insolvency laws.

To those observers who have always viewed insolvency as merely being a way of cleaning up economic trash, all of this attention must be somewhat surprising, and there is no doubt an expectation that all of this attention will soon fade. Such an expectation needs to be resisted. Over the past several years, it has become clear-sometimes painfully so-that, in terms of the overall legal and institutional framework that supports economic activity in a market economy, there is no more important component than that of an effective insolvency system. This article discusses why an effective insolvency system is of relevance to an economic policy maker. After providing a brief overview of how such a framework serves to both support the credit system and strengthen the enterprise sector, it explores the more recent-and somewhat controversial-use of the insolvency system as a means of fostering corporate restructuring in the context of a financial crisis where a large portion of the enterprise sector is in distress.

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