European bankruptcy laws: Implications for corporations facing financial distress

This study presents brief summaries and comparisons of the reorganization opportunities within the current bankruptcy codes in the US, the UK, France, and Germany. I also discuss the main implications for firms facing financial distress according to the provisions available. The focus is on the usefulness of the applicable legal framework in ameliorating the difficulties facing a distressed debtor; mainly, asymmetries of information, conflicts of interest, distorted incentives, and ability to obtain financing to remain in business. In spite of some efforts to remedy the situation, continental European nations continue to provide mixed opportunities and provisions for resolving the problems facing a Viable, liquidity-constrained firm. I present some Very coarse summary data which support these insights. In the conclusion, I discuss very briefly some of the different philosophies and policies behind the different codes, and how these views impact the nature of the codes and the availability of reorganization in the different countries.