Standards and Codes

An effective insolvency system, applied in a predictable manner, is important to the health of a country and the functioning of its financial system, serving to make the risks and consequences of a failure of a corporate entity easier to quantify for all parties involved. By introducing a measure of certainty into insolvency outcomes, effective insolvency regimes enable lenders to more accurately assess risk. Moreover, without effective insolvency systems, the rights of debtors may not be adequately protected and different creditors may not be treated equitably. By providing confidence to creditors regarding how and whether they will be able to recover assets from financially troubled debtors, appropriate creditor rights increase the willingness of lenders to extend loans and encourage caution in the incurrence of liabilities by debtors.

Work has been, or is being, undertaken by the World Bank, together with other institutions, on guidelines for insolvency regimes. In particular:

• The World Bank's draft principles and guidelines for effective insolvency regimes were presented to the World Bank's Board in March 2001 and are undergoing revisions.
• The United Nations Commission on International Trade Law (UNCITRAL) has prepared a Model Law on Cross-Border Insolvency and is considering a legislative guide on domestic insolvency law.
• The IMF has published Orderly and Effective Insolvency Procedures: Key Issues
• INSOL International (an international federation of insolvency practitioners) has also prepared principles for out-of-court workouts.

As work on the standards is still underway, the U.S. has not conducted a self-assessment.