Creditor Protection Research Articles

Late Payments in Poland: Economic and Legal Perspectives

Purpose: The primary purpose of this paper is to carry out a legal and economic analysis of payment bottlenecks in Poland vs. its EU peers. From an economic perspective, the authors analyzed changes in late payments, checked whether overdue invoices become increasingly common, and looked at the losses from uncollected payments in selected EU countries compared against Poland. In turn, when it comes to the legal perspective, the analysis was focused on the evolution of the EU’s legislative policy for late payments and on key challenges and problems related to policy implementation. Also, based on the example of the Polish legal system, this paper described the policy for combating late payment in commercial transactions. Approach/methodology/design: This paper deals with measures in place in EU and national legal systems. The analysis relied on descriptive statistics methods, comparative methods, and legal and historical methods. The authors used the relevant legal acts, the literature on the subject and statistical reports. Findings: While this study shows that overdue payments become less and less problematic in Europe, EU member countries strongly differ in the pace of that process and continue to incur considerable financial losses. Statistical data suggests that existing sanctions have failed to discourage fraudulent contractors, and the guaranteed means of legal protection for creditors have not contributed to tangible improvements in their actual situation. Practical implications: These considerations could be of use in designing an active legislative policy geared towards enabling a true comprehensive protection against the impacts of late payments in commercial transactions. Originality/value: This paper enhances and updates knowledge of legal and economic conditions for combating payment bottlenecks.

Conditions for Creditors to Exercise Special Rights during Reorganization

The business reorganization regulation has traditionally been associated with creditor’s rights protection. The main difficulty in this case lies in the fact that in attempts to provide comprehensive protection of creditors to prevent them from losing the main thing for which the reorganization is needed—in fact, to enable enterprises to adapt to changing economic conditions—because in the presence of excessively burdensome rules, entrepreneurs will not be able or not want to take advantage of such a legal regime. In other words, any law and order is forced to seek a balance between the interests of reorganized entities and creditors. The Russian doctrine is largely isolated from the European tradition and focuses on the discussion of private issues of the application of Russian rules and lacks clear conceptual guidelines for development of these very rules. Special rights that the creditor has in connection with the reorganization of the company constitute the basis for the protection of the creditor’s legitimate interests. The shortcomings of domestic rules give rise to practical problems in the implementation of reorganizations. The creditor’s exercise of special rights during reorganization creates many risks for the company. In this regard, all legal orders impose restrictions on creditors exercising their rights. The paper discusses expedient restrictions of such rights on the basis of the European doctrine.The author concludes that each law and order has developed its own restrictions regarding the circle of creditors protected during reorganization. Concurrently, from the point of view of the previously considered rationale for the protection of creditors the only restrictions we can justify are the restrictions on the exercise of special rights in the event of reorganization of those creditors whose obligations arose after the reorganization started (disclosure of information about reorganization), as well as creditors who have other means of protecting their legitimate interests (for example, a counter-non-performance objection or the right to demand termination of the contract).

The Politics of Privatization, Quality of Governance, and Financial Development in Eastern Europe

ABSTRACT This paper provides theoretical justification and empirical evidence linking the mode of privatization of state assets in banks and industries to the quality of institutions of legal and financial governance that underpin financial development. The evidence from twenty-five states of Eastern Europe suggests that allowing foreigners to assume the role of strategic investors in banks and industries via direct sale methods of divestiture of state assets contributes to legal and institutional development, particularly a stronger and more impartial legal system, better quality of bureaucratic governance, and stronger legal protection of creditors, while insider privatization schemes, such as voucher privatization or management–employee buyouts, do not fulfill the same role. The empirical results are robust to instrumental variable analysis and to the inclusion of numerous economic and political controls for alternative explanations.

Legal Protection for Creditors Against Validity of Trade Binding Act with Loan Without Dependent Rights (Analysis of Verdict Number: 34/Pdt/2017/PT. YYK and Number : 214/Pdt.G/2014/PN.Jkt Sel)

Credit, which was previously considered taboo, is now a necessity in society. Everyone is looking for convenience for credit without knowing the risks and impacts that will occur in the future. The most important element of credit (debt) is the trust of the creditor towards the borrower as the debtor. Sale and Purchase Agreement (hereinafter referred to as PJB) is an agreement between a seller to sell his property to a buyer made with a notarial deed. Cases that occurred in Yogyakarta High Court Decision Number 34 / Pdt /2017/PT.YYK and District Court Decision Number 214 / Pdt, G / 2014 / PN. Jkt.Sel is a case of debt receivable with collateral for a certificate of land rights and the parties poured their agreement into the Sale and Purchase Binding Act (PPJB) and the Selling Power of Attorney, considering that after the two decisions, there was an outstanding debt problem, while the debtor was still have not been able to repay their debts to creditors, with guarantees of certificates of land rights without mortgage. The purpose of this study was to analyze the judges' consideration of the decision Number 34 / Pdt /2017/PT.YYK with Decision Number 214 / Pdt.G / 2014 / PN. Jkt Cell regarding sale and purchase agreement. analyze the legal protection for creditors against the validity of the deed of sale and purchase agreement with a loan without mortgage. analyze repayment by defaulting debtors relating to debts and loans without mortgages. The method used in this study is a normative juridical method, analyzed Normatively Qualitatively, The results of the study show that in Decision Number 34 / Pdt /2017/PT.YYK which states are null and void and do not have the power to bind an authentic deed regarding the "Purchase Bond" Number 01/2015 and authentic deed in the form of "Sales Authority" Number 02/2015 , because based on the Supreme Court Jurisprudence of the Republic of Indonesia number 275K / PDT / 2004. Whereas as a comparison for Decision Number 214 / Pdt.G / 2014 / PN. Jkt Cell, which originally had a legal relationship, that is, debt and receivables which stated that the Plaintiff was proven to have committed a default on the Defendant, stated the Purchase Binding Agreement No. 45 dated July 11, 2008 and all of its derivatives are valid and correct deeds; declare the Deed of Credit Recognition No. 46 dated July 11, 2008 and all of its derivatives are valid and correct deeds; certifies Fiduciary Deed (movable property) No. 47 dated July 11, 2008 and all of its derivatives are valid and correct deeds. Keywords: Legal Protection, Debt-Receivables, Binding Agreement of Purchase, Abuse of Circumstances.

RULING DUE TO BANKRUPTCY ASSETS DEBTORS BEYOND AREAS IN INDONESIA

The purpose of this study is to examine the consequences of bankruptcy decisions on debtor assets outside the territory of Indonesia and to see the extent to which the bankruptcy law provides protection to creditors from debtors whose assets are located outside the territory of Indonesia. This is Normative legal Research with a statutory approach, a conceptual approach and a comparative approach.The results and discussion concluded that the bankruptcy decision handed down by the Commercial Court in Indonesia could have an impact on the debtor’s assets outside the territory of Indonesia in accordance with Article 21 of the Bankruptcy Law. The issue of execution is hindered by the principle of territoriality from other countries. The bankruptcy law has not fully provided legal protection for creditors if the debtor has assets outside the territory of Indonesia, as a way for curators to carry out private selling. Indonesia should adopt the Uncitral Model Law on crossborder insolvency (1997) or enter into international agreements, either bilateral or multilateral.

Ruling due to Bankruptcy Assets Debtors Beyond Areas in Indonesia

The purpose of this study is to examine the consequences of bankruptcy decisions on debtor assets outside the territory of Indonesia and to see the extent to which the bankruptcy law provides protection to creditors from debtors whose assets are located outside the territory of Indonesia. This is Normative legal Research with a statutory approach, a conceptual approach and a comparative approach. The results and discussion concluded that the bankruptcy decision handed down by the Commercial Court in Indonesia could have an impact on the debtor’s assets outside the territory of Indonesia in accordance with Article 21 of the Bankruptcy Law. The issue of execution is hindered by the principle of territoriality from other countries. The bankruptcy law has not fully provided legal protection for creditors if the debtor has assets outside the territory of Indonesia, as a way for curators to carry out private selling. Indonesia should adopt the Uncitral Model Law on cross-border insolvency (1997) or enter into international agreements, either bilateral or multilateral.

Creditor rights, monetary policy, financial crisis, and trade credit

This article analyses how creditor rights affect the trade credit channel of monetary policy. We also aim to test whether these effects were conditioned by the global financial crisis of 2008. Using a sample of 15,356 firms from 29 countries (2001–2017), we found that in normal times or in countries not very severely affected by the financial crisis, trade credit receivables increase during monetary restrictions. Moreover, this increase is less pronounced as creditor protection strengthens. In countries strongly affected by the financial crisis, however, trade credit receivables do not react or even decrease after monetary expansions, regardless of the degree of creditor protection. Furthermore, the results of trade credit payables and net trade credit are not conclusive. JEL CLASSIFICATION: E52; K22; G32

Изменение режима имущества супругов в процедурах банкротства

The article is devoted to the analysis of different aspects, affected changing of legal regime property by the spouses in the bankruptcy proceedings. Making a deal, involving redistribution of assets in favour of sponsible marital partner leads to a significant decrease in the bankruptcy estate. The authors examine the main ways for withdrawal of assets a debtor, who maintains a conjugal relationship, and provide legal instruments to ensure the protection of creditors.

The Role of Creditor Protection in Lending and Tax Avoidance

We examine how creditor rights affect the trade-off between non-debt and debt tax shields. Using four bankruptcy reforms, a panel of private and public firms, and tax return data from Italy, we show that laws empowering creditors reduce tax avoidance and increase debt financing, consistent with firms substituting non-debt tax shields with debt tax shields. We corroborate the validity of our findings using a panel of public firms across 33 countries. We document that the impact of creditor protection laws is mitigated by tax system characteristics, which significantly reduce the incentives to substitute tax avoidance with debt.

An Assessment of the UK Restructuring Moratorium

Many jurisdictions have recently introduced reforms to their debt restructuring regimes in order to ensure that financially distressed but viable companies have effective tools to facilitate their rescue. The COVID-19 pandemic has intensified the need for such tools. The inclusion of a statutory stay is a consistent feature in these reforms. This article examines the introduction of a restructuring moratorium in the UK as part of its recent debt restructuring reforms, introduced by the Corporate Insolvency and Governance Act 2020. Moratoria can be potentially very valuable in promoting the rescue of a company or business, but a balance is required between the benefits to the company and the creditors as a whole on the one hand and the rights of the individual creditors on the other. The success of the UK’s restructuring moratorium in achieving a successful balance is assessed. Ultimately it is argued that the necessary balance does not seem to have been achieved and that the constraints and limitations placed on the moratorium, for creditor protection and other reasons, limit the potential value of this mechanism to a significant extent. Many companies will therefore have to continue to look elsewhere for protection from creditors seeking to disrupt their restructurings.

Protection of members and creditors after the Mobility Directive: challenges in the implementation

The article presents the legal framework for the protection of members and creditors of a company in the context of a cross-border conversion, merger or division pursuant Directive 2019/2121/EU. Reference is made to CJEU case law, which could be considered relevant for the interpretation of these provisions. At the same time the article points out challenges that the national legislator may face when transposing these provisions into national law and offers legal interpretation and suggestions for overcoming these challenges.

Ekonomski efekti zaštite prava kreditora

The willingness of creditors to satisfy the credit demand of the population and the economy under mutually acceptable conditions directly depends on the degree of legal protection enjoyed by creditors. In this paper, we deal with the protection of creditors' rights and the instruments used for this purpose. The aim of this paper is to consider the economic effects arising as a result of the application of instruments of creditors' rights protection, which affect not only the financial position of creditors and debtors but also the stability and efficiency of the financial and economic system as a whole. The research results show that the existence of an adequate level of protection of creditors' rights has a strong positive impact on the size and activity of the credit market. On the other hand, the application of various instruments of creditors' rights protection can cause both positive and negative effects on the creditors position. Yet, an excessively high level of creditors' protection can significantly worsen the position of debtors and, consequently, aggravate the position of creditors in the long run.

КРИПТОВАЛЮТА КАК СЛОЖНООЦЕНИМЫЙ АКТИВ В ПРОЦЕДУРАХ БАНКРОТСТВА ОРГАНИЗАЦИЙ

The emergence of cryptocurrencies has become a major challenge for the regulation of civil and public law. Cryptocurrency is a new object of civil law, and its legal regime is just being formed. However, cryptocurrencies have already started appearing in court cases. The Ninth Arbitration Court of Appeal agreed with the financial manager's arguments and decided to include bitcoins in the bankruptcy estate. According to the arguments of the court of second instance, with the correct application of the principles of civil law, cryptocurrency cannot be interpreted differently than “other property”. Refusal to include it in the bankruptcy estate violates the rights of creditors. The decision of the first instance court serves as a vivid example of literalism in the interpretation of the laws prevailing in Russian justice. At the same time, the decision of the Court of Appeal shows that in certain situations related to economic disputes and the protection of creditors' rights, this literalism can be overcome within the judicial branch of government. Moreover, this can be achieved even in the absence in the written law of norms that are directly applicable to the case in question. The interpretation by the Court of Appeal of cryptocurrency as other property (from the point of view of the Civil Code) is consistent with the concept of federal law dated July 31, 2020 N 259-FZ «On digital financial assets, digital currency and on amendments to certain legislative acts of the Russian Federation».

Capital Requirements and Claims Recovery: A New Perspective on Solvency Regulation

Protection of creditors is a key objective of financial regulation. Where the protection needs are high, i.e., in banking and insurance, regulatory solvency requirements are an instrument to prevent that creditors incur losses on their claims. The current regulatory requirements based on Value at Risk and Average Value at Risk limit the probability of default of financial institutions, but fail to control the size of recovery on creditors' claims in the case of default. We resolve this failure by developing a novel risk measure, Recovery Value at Risk. Our conceptual approach can flexibly be extended and allows the construction of general recovery risk measures for various risk management purposes. By design, these risk measures control recovery on creditors' claims and integrate the protection needs of creditors into the incentive structure of the management. We provide detailed case studies and applications: We analyze how recovery risk measures react to the joint distributions of assets and liabilities on firms' balance sheets and compare the corresponding capital requirements with the current regulatory benchmarks based on Value at Risk and Average Value at Risk. We discuss how to calibrate recovery risk measures to historic regulatory standards. Finally, we show that recovery risk measures can be applied to performance-based management of business divisions of firms and that they allow for a tractable characterization of optimal tradeoffs between risk and return in the context of investment management.

From (No) Bail-outs to Bail-in: A Comparative Assessment of Canada’s Bank Recapitalization Regime

Bail-in within resolution has been at the forefront of the regulatory agenda to end too-big-to fail. The article examines Canada’s recently introduced bail-in framework through a comparative lens, in the backdrop of the COVID-19 pandemic. It argues that Canada embraces a less stringent approach than its international counterparts in applying the bail-in tool and permitting use of public funds. This flexible approach is preferable as it can help the stabilization of the bailed-in bank by facilitating its access to liquidity. Yet, the administration of the bail-in tool will not be without difficulties in Canada. The extensive administrative discretion and opaqueness embedded in the regime come at the expense of rule of law and creditor protection. Further challenges arise from the country’s highly concentrated financial system and interdependencies among the large banks which can also result in a reluctance to turn to bail-in if systemic solvency concerns are present.

Creditor Protection and Divisions – Did the CJEU Get it Right?

Creditor Protection and Divisions – Did the CJEU Get it Right?

Transfer of creditor’s rights to the third parties as the substitution of parties to an obligation

The article studies the general issues of the transfer of creditor’s rights to the third parties as the substitution of parties to an obligation. It is noted that legal literature devoted to the study of law of obligation, the focus is on the institute of modification of obligations. The author stresses that in civil law, there are many interpretations of the concept “substitution of parties to an obligation”, but many scholars share a unified position towards the concept of the institute of modification of obligations by defining it as a change of some elements. The author proposes the classification of cases of modification of obligations by E. Hodeme, who separates three types of modification of obligations: changes which belong to obligation power; changes which belong to a subject or content of an obligation; changes which belong to active or passive subjects of obligation. It is highlighted that as the parties of obligation involve an active subject (a creditor) and a passive subject (a debtor), an obligation is subject to modification both on the part of the creditor and the debtor. In other words, the original creditor and/or debtor can secede from this obligation during obligation action through the substitution. Legal literature defines such a change on the part of the creditor and the debtor as the substitution of parties to an obligation. Taking into account the research subject, the main focus is on the contractual ways of the substitution of parties to an obligation, specifically the contractual transfer of the creditor and assignment of debt. The legal regulation of cooperation between persons participating in the transfer of the rights of demand of the original creditor to the new creditor. In particular, the author characterizes the interrelation between the original and new creditors and the interrelation between the new creditor and the debtor. The research makes it possible to conclude that the legislator strives to keep the stability of the original obligation through allowing the transfer of the creditor’s rights and to avoid the abuse of creditors, it ensures the legal protection of creditors –the weakest subject from the perspective of legal scope of the influence on the process of transferring the mandatory rights of demand to him – using compulsory rules.

A simple joint-stock company: An innovative model of protection for creditors and investors in Poland

The article discusses the most important features of a new type of company in Poland, namely the simple joint-stock company (SJSC) introduced to the Commercial Companies Code by the bill of 19 July 2019. The new company form combines the limited liability of shareholders with a large degree of flexibility, both in terms of shaping mutual relations between shareholders and the company’s management system. There are no significant limitations to the structure of preference shares. Shareholders can choose between different board models. SJSC is characterised, on the one hand, by a lack of excessive formalities associated with its establishment, and on the other, by an agile mechanism to protect the company’s creditors based on a liquidity test. The legal capital concept was abandoned; work and services are permitted as in-kind contributions. Ownership rights in a SJSC are incorporated in dematerialised shares, and the use of them in private trading raises a number of new legal problems. This study focuses, among other things, on the protection of investors purchasing company shares under the provisions of the MIFID II Directive (Markets in Financial Instruments Directive). Considering the sociological foundations of the changes in corporate law taking place in Poland, the author notes that projects based on modern technologies, in particular information technologies, are becoming a prevailing component of the modern economy. The use of these technologies leads to far reaching changes in the structure of individual market segments (market destruction). Current business models are gradually losing relevance and are being replaced by dynamically developing technology companies. An example is the slow decline of traditional linear television and the emergence of enterprises offering so-called “streaming” of selected audiovisual content over the Internet directly to consumers (for example, Netflix), or a reduction in the distribution of music content on CDs for music playback by online integrators (for example, Spotify). However, technology companies have their own far reaching specifics. They are based not only on the latest technological solutions, but also on the visionary entrepreneurship of their founders regarding the potential market applications of these technologies (Bill Gates, Steve Jobs, Jeff Bezos and others). It is safe to say that without the charismatic and visionary personalities of founders, companies like Apple or Amazon would not have appeared as we know them. This is due to the fact that recognizing the potential needs of consumers that can be met with new technological solutions requires creativity that is characteristic of geographical explorers or inventors, and not stereotypical entrepreneurs. Human capital — knowledge and entrepreneurship are beginning to dominate the market economy in the modern world.

A Theoretical Framework for Law and Macro-Finance

What role (if any) should the design of the legal protections of creditors in bankruptcy law play in the regulatory frameworks for financial markets? In this paper, I consider the effects of such protections within the macro-financial theory of leverage cycles of John Geanakoplos. The central tenet of the theory is that leverage is procyclical. That effect exists because creditors tend to lend more in a credit boom, when their expectations for asset returns are optimistic than in a credit bust, when their expectations are pessimistic. I find that strong creditor rights have strong procyclical effects. In a credit boom, when expected asset returns are higher, leverage decreases, creating incentives for creditors to underwrite additional leverage without a substantial impact on its price. The stronger the rights, the more certain recoveries and, as a result, the incentives to underwrite additional debt. By creating such incentives, strong legal protections of creditors exacerbate the credit boom. In contrast, in a credit bust, when expectations for asset returns are pessimistic, strong creditor rights have procyclical effects because they incentivize creditors to force deleveraging or foreclose to maximize recoveries. On the positive side, the framework explains why countries with stronger creditor rights are more likely to experience a violent credit boom. On the normative side, the policy implication is that, in limited circumstances, the strength of creditor rights should be designed in a countercyclical fashion. Through a countercyclical design of creditor rights, policymakers should encourage creditors to lend into a credit bust but discourage them from lending into a credit boom. Recognizing the practical challenges of countercyclical adaptations of the strength of creditor rights, this paper suggests an alternative time-invariant regulatory framework implementing strict limits on leverage on all actors of the economy, from sovereigns, through banks, firms to households. The goal of the framework is to limit credit booms and smoothen the economic cycle.

The Role of Creditor Protection in Lending and Tax Avoidance

The Role of Creditor Protection in Lending and Tax Avoidance