The Economic Effectiveness of Bankruptcy Procedure. An Empirical Study

This article is based on an empirical study conducted by the author that is part of a broader study and focuses on a specific economic aspect of bankruptcy procedure, as one of the many objectives of bankruptcy procedure. The purpose of the study was to evaluate the amount of resources spent in Estonia on bankruptcy proceedings, the amount of resources that are redistributed through insolvency proceedings and the economic benefit or effectiveness of these activities. The study was based on the hypothesis that the current regulation of bankruptcy procedure is economically ineffective and fails to ensure the maximum use of resources. As the majority of bankruptcy proceedings conducted in Estonia have concerned companies, the study focused on the bankruptcy of companies. The study included undertakings that were declared to be insolvent in 2004. The study was based on the sample used in the study “Panel Study. Bankruptcies in Estonia. 2004”. This sample consisted of 97 of the 436 undertakings that were declared bankrupt in 2004, for which the annual reports for the previous two years were available in the commercial register. For the purposes of the study, it was not required that the bankruptcy proceedings were completed. The study reflects cases in which the proceedings were terminated immediately by abatement, in which they were terminated by abatement after bankruptcy was declared and which were conducted in full.

In this article, the author provides an overview of the results of the study and makes recommendations to improve the effectiveness of insolvency procedure.