This document discusses bankruptcy and second chance policies from the perspective of the private sector. It contains the following key points: 1. Business failures are often caused by both internal factors like bad management and external factors such as market changes. Failed businesses can lead to personal insolvency for owners. 2. There is a difference between business failure and personal insolvency. Rescuing a failed business through reorganization before insolvency proceedings provides a second chance for entrepreneurs. 3. Banks provide credit based on trust that debts will be repaid. When defaults occur, trust must be rebuilt between banks and debtors through transparency, cooperation, and creative solutions focused on business turnaround rather than just financial figures.

1. Legal
Johan Jol, Team FR&R Legal
Bankruptcy and Second Chance Policies,
testimonials form the Private Sector

2. Overview
• Introduction
• Causes problems with businesses
• Differentiate between business failure and personal insolvency
• Default
• Proces Management
• Credit = Trust
• Assistance of private sector
• Questions
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3. Causes problems with business
• Internal causes
– Bad management
– Insufficient financial control
– Bad marketing
– Cost level
– Project
– Acquisitions
• External causes
– Market changes
– Competition
– Price level competition
– Government actions
– Strikes
– Bad luck
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4. Differentiate between business failure and
personal insolvency
• Business failure of small and medium-sized enterprises often leads personal
insolvency:
– Failed business is a part of the private persons estate
– Failed business is run in a separate legal entity but private person is liable
for the debt of the business (as guarantor, surety)
• Not all personal insolvencies are business related, not all fresh starts result
in new business
• Rescue of failed business prior to insolvency proceedings (either through
out-of-court settlement or reorganisation proceedings) is effectively a
second chance for failed entrepreneur!
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5. Default
• Standstill to decide what to do, analyse situation
• Alternatives:
1) reversible financial difficulties : business is viable: focus: on
restructuring (either in same legal entity or another)
2) irreversible financial difficulties: speedy liquidation of business,
realisation of collateral, recovery
Caveats:
• many business are not worth saving (economic downturn)
• not all business people want to be rescued
• More recently: third alternative: leaving the table: Secondary market
trading out of the debt
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6. ActResist AcceptDeny
Proces management
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7. Credit = trust
• Bank provides credit based on trust that debtor repays its debts
• If default: revitalize trust between Bank and debtor
• Bank does not have control over debtor
• financial information, business/restructuring plan and validation (IBR)
• Finance documentation (including collateral) enables bank to get a seat at
the table in case of financial difficulties of a debtor
• But: stakeholders management is key: revitalize the broken trust: the role
of reinforcing the management (the chief restructuring officer)
• Special Credits Department of the bank: work out unit, acting as a doctor
• Plan A, the consensual route is always the preferred option versus Plan B,
the non-consensual route is the fall back position
• Plan A is a restructuring in the shadow of the contractual and statutory
law
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8. Assistance of private sector
• Restructuring in the shadow of the law historically successful, insolvency
proceedings as such not used
• Requirements:
– Timely notification of difficulties of debtor to bank
– Access to additional funding by bank if appropriate
– Decision making process within bank should be transparent, adequate and quick
– Special credit department bank should provide debtor with adequate information on why
transfer to special credits department, its role, its costs and the measures required
– No one size fits all, required measures differ in cases
– Transparent process and documents agreements properly
• Pitfalls Special Credit Departments:
– Insufficient knowledge client and/or client sector
– Burdening debtor with information requests
– Process orientated thinking instead of client focused thinking
– Not looking beyond the figures
– Unwillingness to look for creative solutions with focus on turnaround of business
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9. Management of expectations
• Strengthening insolvency law does as such not save business (unless
restructuring focus)
• In practise: restructuring is done outside insolvency proceeding
• Enabling restructuring of business outside insolvency much more effective
• Early warning system could be effective if obligation to act
– assistance with access to finance
– preparation of guidelines for re-starters
– awareness-raising activities
– second chance coaching and education
• Shorter time to complete insolvency proceedings without reorganisation
does not save fallen businesses, but has effect on costs of credit
• Lower costs of and higher recovery rates in insolvency proceedings without
reorganisation do not lead to more saved business, but has effect on costs
of credit
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10. Questions?
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