Effective Insolvency and Creditor Rights Systems

Effective insolvency and creditor rights systems promote economic growth and competition by fostering strong credit cultures and allowing economies to take timely action in cases of default and nonperformance. In the aftermath of the financial crisis of the late 1990s, it was widely recognized that sound insolvency and creditors rights systems constitute one of the twelve areas integral for sound financial systems and financial stability. However, unlike the case with other key standards, there was no established comprehensive best practice standard to be used as a guideline for creating sound insolvency regimes or as a benchmark for assessing existing ones.

The World Bank and UNCITRAL Guidelines

In 1999, the United Nations Commission on International Trade Law (UNCITRAL) approved a proposal to adopt the Legislative Guide on Insolvency Law, which was officially adopted by the 37th session of the Commission on June 25, 2004 and endorsed by the United Nations General Assembly on December 2, 2004. UNCITRAL’s Guide contains the key elements of an effective insolvency law and provides detailed Recommendations on its content. It is intended to inform the preparation of new laws and the assessment of the effectiveness of existing laws and regulations.

In April 2001 the World Bank published The Principles and Guidelines for Effective Insolvency and Creditor Rights Systems (the Principles). The 2001 Principles contained fundamental elements of the commercial laws relating to insolvency and creditor rights systems, including institutional and regulatory aspects of the insolvency and creditor rights regimes. The Principles were intended to have a flexible application in diverse country-specific legal environments. In 2003, the World Bank began a review of the Reports on the Observance of Standards and Codes (ROSC) initiative, including a review of the 2001 Principles and Guidelines for Effective Insolvency and Creditor Rights Systems.

The UNCITRAL Guide and the World Bank Principles are complementary in nature. It was therefore proposed to unify the Guide and the Principles as the recognized standard for insolvency and creditor rights regimes—to be known as the Insolvency and Creditor Rights ROSC Standard (ICR ROSC Standard)—for use as a benchmark in the ROSC assessments. In December 2005, The Principles and Guidelines for Effective Insolvency and Creditor Rights Systems (Revised) 2005 prepared by the World Bank, UNCITRAL, and the International Monetary Fund was posted on the World Bank website for public comment, with comments due no later than March 4, 2006. As of January 2008, the final version of the new ICR ROSC Standard still had not been adopted.

Currently, eStandardsForum provides a general overview of countries’ overall level of compliance with the World Bank Principles issued in 2001 without assessing individual principles within the standard.  The eStandardsForum database will be updated to reflect the above-mentioned developments once the final version of the new ICR ROSC Standard has been adopted.