Debt Resolution Research Articles

An Analysis of Non Performing Assets in Indian Banking Industry: The Tide is Shifting?

The crest of Non-Performing Assets sweeping the Indian Banking sector posed a crisis of sorts. Though the banking sector is no stranger to NPAs but the ensuing globalization coupled with the Damocles sword of Basel Norms made it more severe than it looked especially with the onset of new millennium. The acceptance of a new robust mechanism to make the banking sector less prone to the cruel twist and turns of a market driven economy made it inevitable for the sector to first prune the weak links. The stakeholders took the challenge in tandem with the regulators as well as the Government to check the downturn of assets. However, the immediate outcome was not encouraging. Insolvency and Bankruptcy Code (2016) and Bad Bank with a different nomenclature were introduced through legislative efforts. Though they were new concept for India, it will be too early to predict about success or failure of these new initiatives. The research paper focuses on the concept of the bad debts, its origin and remedies in the context of Indian banking system. The paper co-relates the resolution of bad debts with the growth of Indian economy.

The low self-efficacy trap: why people with vulnerabilities experience prolonged periods with payment problems

IntroductionSocieties place a responsibility on individuals to pay what they owe on time, establishing a coercive apparatus for debt collection and enforcement when they do not, coupled with consumer protection and debt resolution measures to protect the vulnerable.MethodsAn analysis of in-depth interviews with 28 people with both payment difficulties and vulnerabilities from ill-health, using Bandura's Social Cognitive Theory to explore the experiences of vulnerable defaulters as they try to exercise the personal responsibility placed on them by society.ResultsIt finds that they encounter barriers in exercising the personal responsibility which primarily arise in encounters with inflexible and bureaucratic routines – of creditors, debt enforcement agents and even money advisers whose role is to help vulnerable people. These systematically undermine defaulters' self-efficacy, and leaving them facing prolonged periods of payment difficulties.DiscussionThe findings are discussed in the light of Bandura's Theory and lessons drawn for the policies and practices of creditors, debt enforcement bodies, and money advisers.

The Urgency to Renew Bankruptcy Law Requirements and Summary Proof in Indonesia

The provisions pertaining to bankruptcy and summary proof in Law Number 37 of 2004 present various drawbacks in their application, particularly impacting debtors. Debtors can be declared bankrupt with relative ease, and the requirement for declaring bankruptcy does not directly indicate the debtor’s insolvency. This can present difficulties for other creditors, as the leniency in bankruptcy requirements for debtors is viewed as means to accelerate debt resolution, even though not all face the same circumstances. This research will focus on the issues regarding the urgency of revising Law Number 37 of 2004, specifically with regard to the conditions for bankruptcy and summary proof. The method used in this research is the doctrinal legal research method, which entails scrutinizing literary sources, legal theories or principles, research journals, and legislative regulations to analyze the subject of the research. Furthermore, a comparative approach is adopted to evaluate the development of Indonesian law by examining the bankruptcy legal frameworks in France and the Netherlands. The study concludes that the pressing need for amendments to the conditions for bankruptcy and summary proof in Law Number 37 of 2004 necessitates a responsive legal system. This can be achieved through a comprehensive review of problematic regulations. Therefore, the incorporation of additional measures, such as an insolvency test and a proactive approach by judges, establishes a regulatory mechanism that can be viewed as a responsive outcome in the future.

Research on the Identification of Value in Corporate Bankruptcy Reorganization

Bankruptcy reorganization, as a crucial procedure for corporate regeneration and debt resolution, plays a significant role in the salvation of enterprises and the resolution of debts. The identification of the value in corporate bankruptcy reorganization is an extremely important prerequisite, as it is closely related to the initiation of the reorganization process, the smooth progress of the reorganization, and the ultimate success of the reorganization. From the current judicial perspective, Chinas Enterprise Bankruptcy Law does not provide explicit regulations on the identification of the value in corporate bankruptcy reorganization. This lack of clarity hampers the ability of various levels of peoples courts and bankruptcy administrators to address relevant issues in practice, thereby impeding the effective protection of the interests of corporate debtors and creditors. Therefore, improving the identification of the value in corporate bankruptcy reorganization holds significant practical and guiding significance.

ОБЛІКОВО-АНАЛІТИЧНІ ЗАСОБИ УПРАВЛІННЯ ДЕБІТОРСЬКОЮ ЗАБОРГОВАНІСТЮ В СИСТЕМІ ЗАБЕЗПЕЧЕННЯ ЕФЕКТИВНОЇ ДІЯЛЬНОСТІ ПІДПРИЄМСТВА

The article explores the accounting and analytical support for managing receivables, emphasizing their importance in ensuring effective enterprise operations. Receivables, as a key component of working capital, reflect the company’s capacity to manage financial obligations and maintain liquidity. The management of receivables is under constant attention from financial and managerial departments, as delays in their payment indicate inefficient use of both internal and external financial resources, undermining the enterprise's stability. The study reviews Ukrainian and foreign perspectives on receivables management, noting that domestic researchers view this concept through various lenses, including economic essence and practical application. A synthesis of these approaches reveals common features in definitions of debts, accounts receivable, and credit obligations, providing a clearer understanding of the concept’s theoretical and practical dimensions. Particular attention is given to the classification of receivables as a critical tool for identifying the causes of their occurrence, evaluating their composition and quality, and facilitating sound management decisions. This classification enables enterprises to pinpoint problem areas and prioritize the resolution of overdue debts. The study also analyzes the current state of receivables in the national economy, focusing on their role as a vital element of working capital and their impact on enterprise efficiency. Key factors influencing receivables dynamics are identified, including macroeconomic trends, industry-specific risks, and internal management practices. Based on these insights, the article proposes measures to improve receivables management mechanisms. These include optimizing cash flow processes, reducing overdue debts, and enhancing internal controls to mitigate risks. By implementing these recommendations, enterprises can strengthen financial stability and operational efficiency. In conclusion, the article emphasizes the need for a systematic approach to receivables management, combining classification, monitoring, and control to support informed decision-making. The findings contribute to the development of effective tools for improving receivables management, ensuring financial resilience and long-term competitiveness.

Redefining Bankruptcy Law: Incorporating the Principle of Business Continuity for Fair Debt Resolution

This study critically examines the inadequacies of the current Indonesian Bankruptcy Law, highlighting the conflicting nature of its debtors' insolvency declaration mandate, as stated in Article 2, verse (1). The research explores the philosophical basis of incorporating the principle of business continuity into future bankruptcy regulations to ensure fair, rapid, transparent, and efficient debt resolution for both debtors and creditors. Employing a normative legal research methodology, the paper investigates the inherent values of justice, legal certainty, and interests, along with general and bankruptcy principles. The study posits that the essence of bankruptcy law is not merely to protect creditors but also to ensure the survival and continuity of debtor businesses. The findings reveal that existing bankruptcy procedures, including insolvency examinations and financial report analysis, could be refined to better safeguard debtor businesses. This paper argues that an explicit elaboration of the business continuity principle in bankruptcy legislation could promote balanced legal protection in insolvency proceedings. The implications of this research can guide legislative reforms, ensuring a more equitable and efficient debt resolution process in the Indonesian bankruptcy system.Highlights:
 
 The current Indonesian Bankruptcy Law struggles with issues of fairness and efficiency in resolving debt problems.
 The principle of business continuity should be explicitly incorporated into bankruptcy legislation to ensure balanced protection for both debtors and creditors.
 Legal examination mechanisms, such as insolvency examinations and financial report analysis, could be further refined to safeguard debtor businesses more effectively.
 
 Keywords: Indonesian Bankruptcy Law, Debt Resolution, Business Continuity, Normative Legal Research, Legal Protection.

An Exploratory Study on Compulsory Liquidation of a Company and its Liability

This research paper delves into the intricacies of company liquidation, focusing on the winding-up process as an essential legal mechanism to terminate a corporation's existence. The study addresses the objectives of understanding the causes of liquidation, the liabilities of companies during liquidation, and the powers of courts and tribunals in the process. The research scope primarily centers on India's legal framework, encompassing the Companies Act of 2013 and the Insolvency and Bankruptcy Code of 2016. The paper finds that while insolvency is often perceived as the primary reason for liquidation, other factors contribute to the decision. Compulsory winding-up procedures are aimed at permanently closing businesses that are no longer viable, relieving directors of unmanageable debts, and preventing improper trade practices. The research highlights the roles of different adjudicating authorities and examines the differences between voluntary and compulsory winding-up modes. The study draws from existing literature and empirical research to substantiate its findings. The authors compare provisions under the Companies Act and the Insolvency and Bankruptcy Code to showcase the evolution of winding-up regulations. They emphasize the importance of efficient liquidation procedures to address India's bad debt issues. In conclusion, the paper underscores that while insolvency is a significant factor, other circumstances lead to company liquidation. The legal reforms introduced by the Insolvency and Bankruptcy Code have streamlined and expedited the winding-up process, ultimately aiming to facilitate the resolution of bad debts and improve the overall economic landscape. The authors suggest more prudent enforcement of penalties, the preference for voluntary winding-up when suitable, and continued emphasis on the efficiency of the new legal framework.

Research on Local debt Resolution and Financial risk Prevention and Control in Sichuan and Chongqing

This paper focuses on the local debt resolution and financial risk prevention and control in Sichuan and Chongqing. Through the in-depth analysis of the debt scale, structure, causes and risks of the region, it is found that the local debt in Sichuan and Chongqing is mainly driven by infrastructure construction, public services and social investment, and its risk comes from overinvestment, fiscal imbalance and institutional reasons. In view of these problems, this paper discusses the possible debt resolution mechanism and financial risk prevention and control strategy, and puts forward more reasonable risk identification, assessment, early warning and disposal measures in order to reduce the debt risk and maintain the stability of the financial market. Continue to promote the steady development of the local economy and financial risk prevention and control to provide reference, but also for other parts of the country to provide reference and enlightenment

Bank resolution mechanisms revisited: Towards a new era of restructuring

Government interventions as a solution to systemic banking crises continue to receive wide criticism. The new regulatory frameworks advocate banks’ bail-ins and resolutions that do not require governments’ involvement. However, as the recent events with Credit Suisse and Silicon Valley Bank show, the government still plays an active role in rescuing and resolving the bank's problems. We use the financial stability model of Goodhart et al.’s (2005, 2006a) to analyze the effects of various bank policy interventions on banks’ performance during the crisis rescue phase. We then explore whether those interventions work effectively in facilitating bank recovery and whether they reduce systemic risk in the long run. We use a unique granular bank-level dataset from 22 advanced economies covering the 1992–2017 period. We find that bank recapitalization without debt resolution measures does not resolve bank distress. The empirical results document that “bad-bank” resolution is positively correlated with a bank’s recovery as well as lower systemic risk. Those findings contribute to the ongoing debate on the optimal bank resolution architecture during systemic events.

The Credit Suisse CoCo wipeout: Facts, misperceptions, and lessons for financial regulation

The Credit Suisse CoCo wipeout: Facts, misperceptions, and lessons for financial regulation

Financial Solace: Malaysian Credit Counselling and Debt Management Agency Responses to COVID-19 Challenges

This study evaluates the measures undertaken by the Credit Counselling and Debt Management Agency (AKPK) to assist those financially distressed due to their inability to meet their financial commitments amidst the COVID-19 pandemic. Adopting secondary analysis of qualitative data, relevant secondary data, including journal articles, annual reports, and newspaper articles, were analyzed. The study finds that measures adopted by AKPK in response to the COVID-19 pandemic include reinforcing the workforce, enhancing IT infrastructures, deploying digital platforms, using various media channels, introducing online apps, online portals, online webinars, online learning modules, and online payment facility for all debt management participants. AKPK is also entrusted with handling small and medium enterprises (SMEs) under the Small Debt Resolution Scheme. A dedicated SME Helpdesk is established to facilitate the process. AKPK’s continual support to provide financial aid is reflected in its collaborative effort with the banking industry under the Financial Management and Resilience Program and the Financial Resilience Support Program. However, the government should seriously consider strengthening personal data protection laws because of AKPK’s significant reliance on digital platforms. Similarly, appropriate government bodies must take quick action to address the digital divide issue and promote inclusion to reduce disparity in terms of access to online services offered by AKPK. Also, since certain individuals or SMEs with credit facilities with entities not regulated by Bank Negara Malaysia are deprived of this incentive, relevant regulators should undertake actions to provide a similar facility. This study is significant in that it provides lessons to be learned by other credit counseling and debt management agencies in adopting effective measures to enable them to adapt to the new normal. Doi: 10.28991/ESJ-2023-SPER-011 Full Text: PDF

How could a new universal code of conduct prevent and resolve sovereign debt crises? Proposals for design and implementation

AbstractIn response to the COVID‐19 crisis, government spending around the world has increased significantly and will continue to grow as interest rates rise. In view of protracted and costly sovereign debt restructurings in the previous decades, contractual and noncontractual instruments of the Global Debt Governance‐system have been insufficient to prevent and to resolve sovereign debt crisis. While statutory and comprehensive approaches to resolve sovereign debt crises lack the political support such as an insolvency procedure for states incomprehensive contractual approaches including collective action clauses (CACs) cannot fully secure a comprehensive debt resolution. Codes of conduct could constitute an essential instrument to contribute to preventing and resolving sovereign debt crises. There are two main impediments for establishing and adopting such codes of conduct effectively. First, a range of codes of conduct with different institutional settings and principles have been established − and partly implemented − including those of the Institute of International Finance, the United Nations, the G20, the IMF and the OECD. However, differing institutional settings do not contribute to preventing or effectively resolving debt crises when the actors concerned apply different codes of conduct. We suggest a new universal code of conduct in which the elements of the various proposals made by the public and private sectors would be combined. Second, the global economic governance structure lacks incentives for creditors and debtors to adhere to this new universal code of conduct. This paper proposes measures providing incentives for creditors and debtors to apply the nonstatutory code of conduct.

Pre-Packaged Insolvency: Exploring an Alternative Framework for Bankruptcy Resolution in India

This article is a review of literature on the need for alternative bankruptcy resolution framework in India. The study explores the context and background to the recent initiation of limited Pre-Packaged Insolvency in India. The article makes a strong case for having a private and pre-negotiated mode of debt resolution along with the existing CIRP framework in India. The article provides a comparative perspective of CIRP and Pre-Pack driven resolution model in India. The research paper also addresses some of the potential challenges and concerns related to initiation of Pre-Pack in India and accordingly discusses the relevant safeguards for the same. Lastly, the study also provide a brief view of Pre-Pack model currently practiced in the USA.

ЗАГАЛЬНІ КОНЦЕПТУАЛЬНО-ПРАКТИЧНІ АСПЕКТИ ВПЛИВУ ФІНАНСОВОГО РИНКУ НА РОЗВ’ЯЗАННЯ БОРГОВИХ ПРОБЛЕМ

The article is devoted to the justification of conceptual and practical grounds of financial market potential usage in debt problems solution. Emphasis is placed on the insufficient implementation of the dependence of the effectiveness of socio-economic development on the existing financial and economic space of the state, which, being included in one interaction, provide an opportunity to obtain synergistic effects. Among the important prerequisites for the conceptual and practical transformation of the financial and economic space of the state, which in its new quality will have an impact on development, the problems of public debt and the possibilities of the financial market to solve them are considered. Taking into consideration their deep impact on the dynamics of financial relations, the following chain is outlined: "development – space – debt problems – financial market", the imbalance of the latter can influence the effectiveness of change in society, economy and finance in a negative way. It is stated that each of the above-mentioned links with the condition of their own development makes the natural determinant of the other one. It is simultaneously substantiated that the general methodological and practical basis for achieving the appropriate balance is rooted in the spatial approach thus it lies in the matter of financial space formation. It is shown that knowledge of ways to optimize debt policy remains in the process of formation. Debt resolution continues to be dominated due to traditional factors and is not being sufficiently expanded for account of those that have an indirect impact, particularly connected with deeper infiltration into the multidimensional interrelations with the determining factors of the financial space. The factors that give the financial market a special place among the components of development and strengthening of the financial space are presented. The relevance of using the whole range of functional features of this market, which goes beyond the implementation of debt financing, and aimed at strengthening the financial space, is substantiated. The only basis that can optimize the development policy is schematically represented by the chain "financial market – debt problems – space – development". Increased attention to the role of the financial space in solving debt problems and shaping contribution of the financial market, changes the strategic approach to debt policy and further development in general.

Zombies at Large? Corporate Debt Overhang and the Macroeconomy

Abstract Debt overhang is associated with higher financial fragility and slower recovery from recession. However, while household credit booms have been extensively documented to have this property, we find that corporate debt does not fit the same pattern. Newly collected data on nonfinancial business liabilities for 18 advanced economies over the past 150 years shows that, in the aggregate, greater frictions in corporate debt resolution make for slower recoveries, with weak investment and more persistent “zombie firms” and that this is an important factor in explaining the difference in outcomes relative to household credit booms.

Poor mental health is associated with the exacerbation of personal debt problems: A study of debt advice adherence.

It is known that there is an association between debt and poor mental health. However, much of the literature is observational and focuses on how debt may lead to poor mental health. Here, we are interested in how poor mental health may be associated with debt advice adherence. The aim of the study was to investigate the relationship between mental health and debt advice adherence in individuals applying for a formal debt resolution mechanism (an Individual Voluntary Arrangement, IVA). Eighty-six participants completed a survey measuring mental health (MHI-5), memory for information discussed during the appointment, attitudes towards IVAs, and trust in the advisor shortly after having a debt advice appointment. Adherence to the advice (whether participants completed the IVA application) was measured 10 weeks later. The study found that the sample demonstrated poor levels of mental health overall but that non-adherent participants had significantly poorer mental health than those who adhered to the advice. These results suggest that (a) mental health needs to be considered when advising people with problem debt and (b) future research might examine if mental health support should coincide with important decision points in the debtor's journey out of debt.

Do Enhanced Collective Action Clauses Affect Sovereign Borrowing Costs?

This paper analyzes the effects of including collective action clauses (CACs) and enhanced CACs in international (nondomestic law-governed) sovereign bonds on sovereigns’ borrowing costs, using secondary-market bond yield spreads. Our findings indicate that inclusion of enhanced CACs, introduced in August 2014, is associated with lower borrowing costs for both noninvestment-grade and investment-grade issuers. These results suggest that market participants do not associate the use of CACs and enhanced CACs with borrowers’ moral hazard, but instead consider their implied benefits of an orderly and efficient debt resolution process in case of restructuring.

Resolution of Debts and Insolvency and Bankruptcy Code, 2016: The Status of Government Dues and Taxes

The resolution of Corporate Debts has always been an intrinsic issue for the Government, because increase in distressed units would have a cyclic effect on the growth of the Indian economy. Therefore, since 1985, the Government has tried to arrest financial distress by way of statutory solutions. First, it was Sick Industrial Companies (Special Provisions) Act, 1985, and thereafter, a number of other legislations such as, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 were passed, but these efforts went in vain, since non-performing assets (NPA) kept escalating. The Insolvency and Bankruptcy Code, 2016 (IBC, 2016) was passed with much enthusiasm to check these increasing NPAs. But, with the passage of time, it has been realised that, IBC 2016 has not been that effective when it comes to combatting the growth of NPAs or recovery of debt especially of the government authorities. The worst hit is the recovery of the state taxes. Taxes are the links between the state and development of an economy, as they are collected for utilisation towards welfare goals of the government and therefore, any deficiency in the collection of taxes, has a direct impact on the prevalent inequality in the society and it also directly affects the rights of the vulnerable groups and marginalised classes, such as, their right to food, health and shelter and other human rights’ issues. The objective of the present research article, therefore, is first, to analyse the different legislations passed by the Parliament to look at the pertinent issues related to NPAs and collection of taxes. Second-, the purpose is to examine as to how the non-recovery of taxes directly affects the State welfare schemes, which further directly affects the human rights of the weaker sections of the society and vulnerable classes and third, as to how IBC, 2016 has addressed the issues of recovery of tax dues.

Resolving Mortgage Distress after COVID-19: Some Lessons from the Last Crisis

Abstract We analyse micro data on Irish mortgages and distressed households’ balance sheets in the last decade to assess the debt resolution process in the Irish mortgage market in the lead up to the COVID-19 shock. We highlight the widespread engagement of Irish borrowers with debt resolution mechanisms during a decade in which one sixth of mortgage accounts were restructured by 2016. Lenders favoured short-term mortgage modifications at the beginning of the decade and three-quarters of performing mortgages with short-term modifications in 2011-2012 remained performing at end-2017. However, close to half of these cases involved a subsequent longer-term restructure, consistent with concerns that short-term modification alone is not sufficient to ensure mortgage sustainability. In other cases, an over-reliance on unsustainable short-term arrangements translated into longer-term arrears accumulation. Turning to the financial distress of households seeking a resolution to their arrears, we find an average income fall of roughly one third since mortgage origination and that one third had already reduced their non-housing expenditures to below the recommended minimum level used in the personal insolvency system. Finally, we show that larger cuts in repayment burdens and lower ex-post payment-to-income ratios are both highly predictive of successful long-term restructures.

The Role of Insolvency Tests: Implications for Indian Insolvency Law

Insolvency determination is central to the formal insolvency and bankruptcy proceedings of a debtor entity. In determining whether a company is solvent or insolvent, two tests are generally used by the bankruptcy courts across all jurisdictions: the Commercial Cash Flow and the Balance Sheet test. While enacting the Insolvency & Bankruptcy Code in 2016, India has moved away from the traditional dual test approach followed by Indian courts under the Indian Companies Act to specific Cash Flow test. This paper discusses conceptual basis of the two tests as evolved under insolvency laws of the United Kingdom and United States, with a view to comparatively study the nascent Indian insolvency regime. The paper concludes that irrespective of the statutorily prescribed test, over the years, courts across jurisdictions have taken recourse to both the tests to ascertain the overall commercial viability. In this lies an answer for India’s work in progress - Insolvency & Bankruptcy Code, 2016. While the cash flow test is the test specified under Indian insolvency law, the paper shows, both the tests exist for a reason and Indian regime may have to adopt international experience in applying both the tests more or less jointly within the spirit of efficient debt resolution.