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The Economy: Perceptions and Contacts

Mushirul Hasan

in Exploring the West: Three Travel Narratives

The author comments on the economy of England, describing the country's finances, mode of assessing the taxes, government loans, national debt, and the effects of the heavy taxes on all classes of ... More

The author comments on the economy of England, describing the country's finances, mode of assessing the taxes, government loans, national debt, and the effects of the heavy taxes on all classes of people (poor, rich, and the middling classes). He proposes a plan for the liquidation of the national debt.Less

 Day‐to‐Day Management

Dr. Ben S. Branch, Hugh M. Ray, and Robin Russell

in Last Rights: Liquidating a Company

This chapter describes the day-to-day management of a liquidation. It addresses the liquidator's need to secure office space, retain key employees, hire staff, take custody of the company's records, ... More

This chapter describes the day-to-day management of a liquidation. It addresses the liquidator's need to secure office space, retain key employees, hire staff, take custody of the company's records, establish internal controls for the handling of funds, maintain records, and comply with federal, state, and local laws. The process for the review and assumption or rejection of executory contracts to which the debtor is a party is outlined. The practical steps for liquidation management are also explained.Less

Conclusion

JULIUS RUIZ

in Franco's Justice: Repression in Madrid after the Spanish Civil War

This chapter focuses on the liquidation of the post-war repression in Spain. The liquidation process occurred without the regime modifying — let alone repudiating — the rationale behind the mass ... More

This chapter focuses on the liquidation of the post-war repression in Spain. The liquidation process occurred without the regime modifying — let alone repudiating — the rationale behind the mass punishment and purging of the defeated. This helps to explain why the repressive system constructed during or immediately after the civil war survived in some form until the 1960s and 1970s. However, the fact that the liquidation of the civil war repression in Spain was not based on a genuine desire for reconciliation does not make it meaningless. In Madrid, and elsewhere, mass executions ended in 1941; few civil war prisoners actually served the totality of their sentences; and few LPR investigations ended in a sentence.Less

Fundamentals-Based Models

Michael Chui and Prasanna Gai

in Private Sector Involvement and International Financial Crises: An Analytical Perspective

Explores the role played by fundamental factors in driving financial crises. The model of optimal banking crises by Allen and Gale (1998) is explored in detail, as is the first-generation currency ... More

Explores the role played by fundamental factors in driving financial crises. The model of optimal banking crises by Allen and Gale (1998) is explored in detail, as is the first-generation currency crisis model of Krugman (1979). A key insight is that the welfare costs of crisis are associated with the inefficient liquidation of assets and sub-optimal risk sharing, rather than crises per se.Less

The Pari Passu Principle and its Relationship with Other Methods of Insolvency Distribution

RIZWAAN JAMEEL MOKAL

in Corporate Insolvency Law: Theory and Application

This chapter delves into the nature of the pari passu principle, which supposedly requires all unsecured claims of an insolvent company to be met proportionately from the insolvent's estate. It ... More

This chapter delves into the nature of the pari passu principle, which supposedly requires all unsecured claims of an insolvent company to be met proportionately from the insolvent's estate. It argues that there is widespread misunderstanding about the role of this principle. The principle is claimed by commentators to be responsible for the orderliness of corporate liquidation, to explain and justify the collectivity of the liquidation regime and the rules providing for the avoidance (or more accurately, adjustment) of certain types of transaction, and to ensure fairness to all of the insolvent's creditors. The central claim in the chapter —that none of these functions can properly be attributed to the principle —is illustrated by empirical evidence of how the estates of insolvent companies are in fact distributed, the statutory provisions which help put the principle in its proper place, and the case law said to support it. The Authentic Consent Model is deployed to demonstrate that the pari passu rule —often called the ‘equality’ principle—has little to do with ‘real’ equality. The chapter shows what it claims is the actual role of ‘formal’ equality of the sort enshrined in the ‘equality’ principle.Less

Bankruptcy Procedure

Oliver Hart

in Firms, Contracts, and Financial Structure

There are circumstances, arising perhaps from an unexpected shock, in which companies default on their debt. This chapter discusses the need for, and goals of, a formal bankruptcy procedure. A ... More

There are circumstances, arising perhaps from an unexpected shock, in which companies default on their debt. This chapter discusses the need for, and goals of, a formal bankruptcy procedure. A bankruptcy procedure should aim to achieve an ex‐post efficient outcome, preserve the bonding role of debt and the absolute priority of claims. The author describes the existing procedures in the West with particular emphasis in the US and the UK and point out some of their flaws. He presents the Aghion–Hart–Moore (AHM) bankruptcy procedure, in which debt claims are converted into equity (respecting absolute priority) and the decision about whether to liquidate or reorganize is then put to vote by the new shareholders. It is argued that AHM combines desirable features of existing procedures and at the same time overcomes some of the major shortcomings of these procedures.Less

Business Bankruptcies across Countries and the Law

BENOIT MARIO PAPILLON

in International Finance: A Survey

Comparisons between countries and over time indicate large differences in business bankruptcy rates. Standard causes of bankruptcy, which leave no explicit role for institutions and the law, do not ... More

Comparisons between countries and over time indicate large differences in business bankruptcy rates. Standard causes of bankruptcy, which leave no explicit role for institutions and the law, do not adequately account for these differences. This chapter uses the arithmetic of bankruptcy rates to sort out and classify potential sources of variations in bankruptcy rates, distinguishing stock from flow variables and business bankruptcy from other business failures. It then relates cross-country differences in business bankruptcy rates to differences in the characteristics of country laws as well as basic aspects of production including organization and financing.Less

Hedge Fund Liquidation and Hedge Fund Influence on the General Market

Douglas Cumming, Na Dai, and Sofia A. Johan

in Hedge Fund Structure, Regulation, and Performance around the World

Chapter 10 discusses the survival of hedge funds. By analyzing what causes the failure of hedge funds, it is hoped that a better understanding of the risks in the hedge fund industry is developed.

European Bank Insolvency and Liquidation Proceedings

Dalvinder Singh

in European Cross-Border Banking and Banking Supervision

This chapter assesses the link between insolvency and liquidation, focusing on the orderly protection of depositors. There are differences in approach to safeguard the public interest at the regional ... More

This chapter assesses the link between insolvency and liquidation, focusing on the orderly protection of depositors. There are differences in approach to safeguard the public interest at the regional and domestic levels. The misalignment of domestic insolvency-liquidation law and depositor protection mandates is likely to lead to wider techniques being needed to effectuate an orderly insolvency-liquidation proceeding and payout to banks’ depositors. This means the competent authority, the resolution authority, and the management of the bank, or administrator-liquidator will need to coordinate their responsibilities through a court-based process during the timeframe of failing or likely to fail to achieve an orderly payout to depositors. The potential coordination risks would need to be factored into the process of a failing or likely-to-fail timeframe.Less

Liquidation

Hamish Anderson

in The Framework of Corporate Insolvency Law

As Nicholls LJ said in Re Atlantic Computer Systems Plc: The basic object of the winding up process, in the case of an insolvent company, is to achieve an equal distribution of the company’s assets ... More

As Nicholls LJ said in Re Atlantic Computer Systems Plc: The basic object of the winding up process, in the case of an insolvent company, is to achieve an equal distribution of the company’s assets among the unsecured creditors. Less

Ruin and Death 1841

Lawrence M. Crutcher

in George Keats of Kentucky: A Life

George guarantees the note of Tom Bakewell for a large steamboat project, which is terminated following the Panic of 1837. Bakewell defaults and George bankrupts himself trying to pay the debt. On a ... More

George guarantees the note of Tom Bakewell for a large steamboat project, which is terminated following the Panic of 1837. Bakewell defaults and George bankrupts himself trying to pay the debt. On a lumber buying trip, he falls ill of an undefined gastro-intestinal ailment and dies on Christmas eve, 1841. His estate is insolvent, able to pay about 20 cents on the dollar of his indebtedness.Less

Dodd–Frank Orderly Liquidation for Nonbank SIFIs (Including Bank Holding Companies)

Hal S. Scott

in Connectedness and Contagion: Protecting the Financial System from Panics

The orderly liquidation authority (OLA) contained in Title II of the Dodd–Frank Act, created a new regime for receivership of nonbank financial companies whose failures “would have serious adverse ... More

The orderly liquidation authority (OLA) contained in Title II of the Dodd–Frank Act, created a new regime for receivership of nonbank financial companies whose failures “would have serious adverse effects on the financial stability in the United States.” As such, OLA is intended to offer regulators an alternative to bankruptcy proceedings. Once the company is under OLA, the Federal Deposit Insurance Corporation (FDIC) has broad authority to resolve the insolvent firm. The FDIC, in conjunction with the Bank of England, has stated its preference for a “single-point-of-entry” (SPOE) approach to resolving failed financial companies. Under this approach the FDIC would be appointed as receiver to the top-tier parent of the failed holding company. This chapter discusses the general design of the OLA and the SPOE strategy; total loss absorption capacity (TLAC) to assure holding company recapitalization; recapitalization of operating subsidiaries; safe harbor for derivatives counterparties facing a failing institution; cross-border cooperation of regulators in the use of the SPOE approach.Less

Systemic Risk and Hedge Funds

Nicholas Chan, Mila Getmansky, Shane M. Haas, and Andrew W. Lo

in The Risks of Financial Institutions

This chapter reports that inferences about risk can be acutely sensitive to the sample period used to produce risk measures. It also discusses the increasing role of hedge funds. The dynamics of ... More

This chapter reports that inferences about risk can be acutely sensitive to the sample period used to produce risk measures. It also discusses the increasing role of hedge funds. The dynamics of hedge funds are quite different to those of more traditional investments, and the potential impact on systemic risk is apparent. Illiquidity and smoothed returns may be significant properties for hedge fund returns. Serial correlation may serve as a proxy for a fund's liquidity exposure. The banking sector has significant exposure to certain hedge fund indexes, implying the presence of some common factors between hedge funds and banks, and raising the possibility that dislocation among the former can impact the latter. It is shown that the average liquidation probability for funds in 2004 is over 11 percent, which is higher than the historical unconditional attrition rate of 8.8 percent. The chapter explains how the banking sector is exposed to hedge fund risks.Less

Why Do Governments Dump State Enterprises?: Evidence from China

David D. Li and Francis T. Lui

in Governance, Regulation, and Privatization in the Asia-Pacific Region

This chapter tests competing theories of why governments dump (i.e., privatize or liquidate) state-owned enterprises (SOEs). The main finding is that governments dump SOEs not to increase efficiency ... More

This chapter tests competing theories of why governments dump (i.e., privatize or liquidate) state-owned enterprises (SOEs). The main finding is that governments dump SOEs not to increase efficiency but to enhance tax revenue, or relieve themselves of the financial burden of subsidizing unprofitable state enterprises. The chapter is organized as follows. Section 8.2 describes the simple model of privatization and its predictions. Section 8.3 explains the design of the empirical tests and measurement of variables. Test results are presented in Section 8.4, and Section 8.5 summarizes the chapter with discussions on some policy implications. Two commentaries are also included at the end of the chapter.Less

The Life Cycle of Hedge Funds: A New Perspective

Mila Getmansky Sherman and Rachel (Kyungyeon) Koh

in Hedge Funds: Structure, Strategies, and Performance

This chapter analyzes the life cycle of hedge funds. Analysis using the Thomson Reuters Lipper TASS database reveals industry-related and fund-specific factors affecting the survival probabilities of ... More

This chapter analyzes the life cycle of hedge funds. Analysis using the Thomson Reuters Lipper TASS database reveals industry-related and fund-specific factors affecting the survival probabilities of hedge funds. Analysis of hedge fund flows and asset sizes can offer insights into a fund’s future survival. Fund performance is a nonlinear function of a fund’s asset size. A fund can obtain an optimal asset size by balancing the effects of past returns, fund flows, market impact, and competition. Competition among hedge funds using similar strategies presents challenges. To survive, funds employ dynamic strategies, move nimbly from market to market, and develop unique strengths. Being an effective market and strategy timer is critical because funds using the right strategy at the right time are more likely to survive. The chapter also analyzes the last stage of the hedge fund life cycle—liquidation or closure. Fund characteristics, risk measures, and style-related factors can help predict fund liquidation.Less

Introduction

Nicolaes Tollenaar

in Pre-Insolvency Proceedings: A Normative Foundation and Framework

This first chapter provides an overview of the aims of the book. The main objectives of this text are to develop a normative foundation for pre-insolvency proceedings, outline the fundamental ... More

This first chapter provides an overview of the aims of the book. The main objectives of this text are to develop a normative foundation for pre-insolvency proceedings, outline the fundamental principles that underlie a pre-insolvency plan procedure, and set out a framework that outlines what a pre-insolvency plan procedure should resemble in an ideal world. The chapter anticipates the content of the subsequent chapters in the book and then looks at terminology. It defines terms such as plan, plan procedures, insolvency, bankruptcy, liquidation, pre-insolvency, and pre-insolvency proceedings. The chapter outlines pending legislative initiatives seeking to introduce pre-insolvency proceedings both in the Netherlands and at the European level.Less

Pre-Insolvency Proceedings: Objective and Justification

Nicolaes Tollenaar

in Pre-Insolvency Proceedings: A Normative Foundation and Framework

This chapter starts with a brief outline of the pre-insolvency plan in the conceptual form proposed in this book. It then goes on to develop a normative foundation for pre-insolvency proceedings and ... More

This chapter starts with a brief outline of the pre-insolvency plan in the conceptual form proposed in this book. It then goes on to develop a normative foundation for pre-insolvency proceedings and formulates the boundary conditions that must be satisfied for their application. As part of the analysis the concepts of fair market value and liquidation value are examined and the differences between price and value are discussed. The chapter explains why pre-insolvency proceedings are to be conceived as a collective debt enforcement instrument of the creditors rather than a rehabilitation instrument of the debtor. The chapter concludes by defining pre-insolvency as the stage at which insolvency has become inevitable and argues that this is the earliest possible triggering event for the use of a collective enforcement procedure, such as the plan mechanism in the proposed form.Less

Initial Observations on Valuation and Valuation Terminology

Nicolaes Tollenaar

in Pre-Insolvency Proceedings: A Normative Foundation and Framework

This chapter looks at valuation. It explains that in a restructuring a paper valuation exercise is needed to establish who still is entitled to value and who is not. In a liquidation, where the ... More

This chapter looks at valuation. It explains that in a restructuring a paper valuation exercise is needed to establish who still is entitled to value and who is not. In a liquidation, where the business is sold to the highest bidder in the market through a proper sale process, a valuation exercise is not required. In liquidation, the value available for distribution is determined by the market. The chapter then offers a high-level outline of the key steps of the valuation exercise in the context of a restructuring. Terminology is defined, such as asset value, cash flow value, going concern value, goodwill, enterprise value, reorganization value, liquidation value, fair market value, and option value.Less

Summary

Nicolaes Tollenaar

in Pre-Insolvency Proceedings: A Normative Foundation and Framework

This chapter provides a detailed summary of the contents of the eight chapters that constitute the main body of the text. It finally considers areas of future research on pre-insolvency ... More

This chapter provides a detailed summary of the contents of the eight chapters that constitute the main body of the text. It finally considers areas of future research on pre-insolvency proceedings—topics that this book has not considered—such as securities law, corporate law, labour law, tax law, and international aspects of pre-insolvency proceedings. The currently available individual and collective liquidation proceedings are far from optimal, the chapter argues. They provide only for enforcement against individualized assets. In more advanced economies more and more value is tied up in contracts and in the abstract capacity to generate cash flows with a complex of assets and activities that, as an operating whole, are worth more than their inactive constituent parts. Many insolvency systems are not adequately attuned to dealing with value in contracts or in the abstract notion of earning capacity more generally. Developing effective and efficient proceedings for the enforcement of claims against a business as an operational, cash-flow-generating whole, and enabling creditors to recover value captured in earning capacity constitute a field that is ripe for further research and an area in which significant improvement can be achieved.Less