It is part of the human condition to compete and part of that competition is supported by newspapers, government agencies and others by measuring performance and putting different features of individuals, corporations and nations into league tables.
Insolvency is no different.
The World Bank (2017) publishes a regular update on the efficiency of debt recovery and insolvency regimes across the world. There is not space here to fully describe the way in which they achieve “scores” for each country and region but the aim is clear – just how certain can creditors and banks be about debt recovery across the globe?
SOURCE: WORLD BANK, 2016
The World Leaders
Top of the league in 2017 is Japan, with a recovery “score” of 93, followed by Finland, USA and Germany – all above 90. The UK comes in 13th with a “score” of 80.24, well above the average for OECD (The Organisation for Economic Co-operating and development) high income nations. Scores are derived from levels of recovery and cost, speed of action and robustness of the court system, amongst other things. Costs, of course rise with delay and so speedier procedures can often be cheaper.
Of course banks consider this as part of their metrics to judge credit risk around the world. Trade with Japan would typically give a high chance of near full recovery of debts…and in a reasonable time frame. Debts in, say, Myanmar (20.39) or Venezuela (18.66) could be more problematic to recover. Looked at the other way around, however, some countries offer debtors greater chances of avoiding repayment!
Who Dictates the Recovery Rates?
A central part of World Bank conclusions over a number of years is that recovery rates are influenced by the professional status of those involved in Insolvency and the robustness of legal systems (and lack of corruption). This particular feature was well illustrated by Djankov et al (2008) when they sent a fictitious case study of a failed hotel to Insolvency Practitioners in over 80 countries. Their findings showed that liquidation was very prevalent (with consequent low recoveries) in nations where professional practitioners were less established and court systems less robust.
Djankov, S. Hart, O. McLiesh, C. and Shleifer, A. (2008) Debt enforcement around the world [pdf]. Available at: http://dash.harvard.edu/handle/1/2961825 [Accessed: 30 November 2017].
World Bank (2017) Doing business: resolving insolvency [online]. Available at: http://www.doingbusiness.org/data/exploretopics/resolving-insolvency [Accessed: 30 November 2017].
Read more of Dr Keith Pond's previous articles below: