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Law, Justice and Development Week 2013
Towards A Science of Delivery in Development
How Law and Justice Can Help Translate Voice,
Social Contract and Accountability into
Development Impact
November 11-15, 2013
1818 Street NW
Washington DC
What can we learn from the
various insolvency law
reform processes
throughout Western Europe?
Sophie Vermeille, head of Rules for
Growth / Droit & Croissance
October 20, 2014www.worldbank.org/ljdweek2014 3
New context, new challenges
 The severity of the crisis has made it necessary to
adopt measures in order to facilitate the conversion
of debt into equity; before, the alternative option
was either to reschedule debts or to liquidate the
debtor
 Financial innovation has made it much more complex
restructuring the capital structure of companies >
new markets players, different bargaining powers
October 20, 2014www.worldbank.org/ljdweek2014 4
New context, new challenges
 a more intense competition in a globalized world,
 a declining average productivity rate
 the increasing digitization of the economy
> increase the need for companies to quickly -
restructure in an efficient manner
October 20, 2014www.worldbank.org/ljdweek2014 5
New challenges…. but lack of
overarching vision
 Many reforms during the last few years, difficulties
to offer an overhaul of their insolvency law >
complexity, lack of transparency, side effects
 no reform of the judiciary system in most of the
countries (Germany, France, Spain) > difficulties for
judges to deal with the new issues
October 20, 2014www.worldbank.org/ljdweek2014 6
New challenges…. but lack of
overarching vision
 Lack of data is an issue if you want to tackle lobbies
and promote an ambitious reform
 Lack of Law & Economics approach; a strong political
and cultural sensivity remains
October 20, 2014www.worldbank.org/ljdweek2014 7
Encouraging out-of-court proceedings
yes of course, but…
 Common observation that too much value is
destroyed during bankruptcy proceedings
 Tendency to encourage out-of-court restructuring by
relaxing the unanimity rules which are provided for in
the various contractual agreements
October 20, 2014www.worldbank.org/ljdweek2014 8
Encouraging out-of-court proceedings
yes of course, but…
 Parties negotiate in the shadow of the bankruptcy
proceedings > if the bankruptcy proceedings result in
an unefficient result, the negotiations are likely to
produce an unefficient result
 Insufficient deleveraging of the companies
 Risk of wrong wealth transfer between creditors and
shareholders
October 20, 2014www.worldbank.org/ljdweek2014 9
Focus on France
 4 reforms in less than 10 years, a 5th one is about to
be approved
 Very complex legal framework; eight different
proceedings can be open…
 Predictability is key for investors but difficulties to
understand the legal framework
October 20, 2014www.worldbank.org/ljdweek2014 10
Focus on France
 the Ministry of the Economy has failed to introduce a
"cram down" like in the U.S. > risk of infringement of
shareholders' property rights?! Really?
 Difficulty to consider that creditors' property rights
deserve the same level of protection as shareholders
October 20, 2014www.worldbank.org/ljdweek2014 11
What can other countries draw from
this experience ?
 Changing the law is nice, improving the quality of the
judiciary system is key for predictability
 Civil law jurisdiction versus Common law jurisdiction
will no longer be a meaningful distinction > French
law will be more and more creditor friendly in the
future
October 20, 2014www.worldbank.org/ljdweek2014 12
What can other countries can draw
from this experience ?
 Harmonizing insolvency law among various countries
is key in order to develop debt capital markets
 the European Union will probably make some
progress in the near future but it will be harder than
for OHADA due to political sensivity
October 20, 2014www.worldbank.org/ljdweek2014 13
Contact
SophieVERMEILLE
Droit &Croissance
Rules forGrowth
+ 33 (0) 6 73 04 89 90
svermeille@droitetcroissance.fr
www.droitetcroissance.fr
http://fr.linkedin.com/in/sophievermeille

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What can we learn from the various insolvency law processes in Europe?

  • 1. Law, Justice and Development Week 2013 Towards A Science of Delivery in Development How Law and Justice Can Help Translate Voice, Social Contract and Accountability into Development Impact November 11-15, 2013 1818 Street NW Washington DC
  • 2. What can we learn from the various insolvency law reform processes throughout Western Europe? Sophie Vermeille, head of Rules for Growth / Droit & Croissance
  • 3. October 20, 2014www.worldbank.org/ljdweek2014 3 New context, new challenges  The severity of the crisis has made it necessary to adopt measures in order to facilitate the conversion of debt into equity; before, the alternative option was either to reschedule debts or to liquidate the debtor  Financial innovation has made it much more complex restructuring the capital structure of companies > new markets players, different bargaining powers
  • 4. October 20, 2014www.worldbank.org/ljdweek2014 4 New context, new challenges  a more intense competition in a globalized world,  a declining average productivity rate  the increasing digitization of the economy > increase the need for companies to quickly - restructure in an efficient manner
  • 5. October 20, 2014www.worldbank.org/ljdweek2014 5 New challenges…. but lack of overarching vision  Many reforms during the last few years, difficulties to offer an overhaul of their insolvency law > complexity, lack of transparency, side effects  no reform of the judiciary system in most of the countries (Germany, France, Spain) > difficulties for judges to deal with the new issues
  • 6. October 20, 2014www.worldbank.org/ljdweek2014 6 New challenges…. but lack of overarching vision  Lack of data is an issue if you want to tackle lobbies and promote an ambitious reform  Lack of Law & Economics approach; a strong political and cultural sensivity remains
  • 7. October 20, 2014www.worldbank.org/ljdweek2014 7 Encouraging out-of-court proceedings yes of course, but…  Common observation that too much value is destroyed during bankruptcy proceedings  Tendency to encourage out-of-court restructuring by relaxing the unanimity rules which are provided for in the various contractual agreements
  • 8. October 20, 2014www.worldbank.org/ljdweek2014 8 Encouraging out-of-court proceedings yes of course, but…  Parties negotiate in the shadow of the bankruptcy proceedings > if the bankruptcy proceedings result in an unefficient result, the negotiations are likely to produce an unefficient result  Insufficient deleveraging of the companies  Risk of wrong wealth transfer between creditors and shareholders
  • 9. October 20, 2014www.worldbank.org/ljdweek2014 9 Focus on France  4 reforms in less than 10 years, a 5th one is about to be approved  Very complex legal framework; eight different proceedings can be open…  Predictability is key for investors but difficulties to understand the legal framework
  • 10. October 20, 2014www.worldbank.org/ljdweek2014 10 Focus on France  the Ministry of the Economy has failed to introduce a "cram down" like in the U.S. > risk of infringement of shareholders' property rights?! Really?  Difficulty to consider that creditors' property rights deserve the same level of protection as shareholders
  • 11. October 20, 2014www.worldbank.org/ljdweek2014 11 What can other countries draw from this experience ?  Changing the law is nice, improving the quality of the judiciary system is key for predictability  Civil law jurisdiction versus Common law jurisdiction will no longer be a meaningful distinction > French law will be more and more creditor friendly in the future
  • 12. October 20, 2014www.worldbank.org/ljdweek2014 12 What can other countries can draw from this experience ?  Harmonizing insolvency law among various countries is key in order to develop debt capital markets  the European Union will probably make some progress in the near future but it will be harder than for OHADA due to political sensivity
  • 13. October 20, 2014www.worldbank.org/ljdweek2014 13 Contact SophieVERMEILLE Droit &Croissance Rules forGrowth + 33 (0) 6 73 04 89 90 svermeille@droitetcroissance.fr www.droitetcroissance.fr http://fr.linkedin.com/in/sophievermeille