Photo: Khasar Sandag / IFC
But many insolvency systems fall short in moving quickly to save viable businesses. This is in part because bankruptcy carries social stigma, which encourages debtors to delay recognition of financial challenges. In many countries, the absence of early warning systems, by which auditors or corporate bodies inform the directors of identified financial threats, further explains this tendency. As a result, insolvency proceedings often get started when there is nothing left to save. What could have been the reorganization of a distressed company if tackled on time ends up in a piecemeal liquidation, leaving both the debtor and its creditors dissatisfied.
Workers in a cotton processing facility in Burkina Faso. Photo: Dominic Chavez / IFC
After a year of dramatically altered consumption, disrupted business operations, and corporate distress around the world, policy makers may need to take dramatic steps to shore up the private and financial sectors. In its recent report Reviving and Restructuring the Corporate Sector Post-Covid: Designing Public Policy Interventions, the G30, an international body of leading financiers and academics, examines potential governmental responses and provides a practical guide to inform policy makers’ future decisions amid the pandemic’s mounting human, social, and economic costs.
Several key findings emerge from this report regarding the shortcomings of initial economic and financial public policy responses to the pandemic. First, the G30 noted a trend in the inadequate targeting of public financial support. This was understandable given the need to act quickly, but if continued, this oversight ca