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Article
Publication date: 1 April 2024

Ahmad Hidayat bin Md Nor, Aishath Muneeza and Magda Mohsin

This study aims to develop a comprehensive insolvency model tailored to Islamic banks, ensuring alignment with Shariah principles throughout pre-insolvency, bankruptcy and…

Abstract

Purpose

This study aims to develop a comprehensive insolvency model tailored to Islamic banks, ensuring alignment with Shariah principles throughout pre-insolvency, bankruptcy and post-bankruptcy stages.

Design/methodology/approach

The research adopts a qualitative research method, using a desktop research approach. Primary sources and secondary sources are examined to gather information and draw conclusions.

Findings

This study presents a comprehensive insolvency model designed for Islamic banks, rooted in Shariah principles. The model covers pre-insolvency, bankruptcy (taflis) and post-bankruptcy stages, incorporating key Shariah parameters to ensure adherence to Islamic finance principles. It addresses challenges such as adapting to dynamic financial landscapes and varying interpretations of Shariah principles. Notably, the model recognizes the separate legal personality of Islamic banks and emphasizes transparency, fairness and compliance with religious obligations. In the post-bankruptcy stage, directors are urged to voluntarily settle remaining debts, aligning with ethical and Shariah-compliant standards.

Originality/value

The study contributes to the stability and growth of Shariah-compliant financial systems by extending insolvency principles to Islamic banks, providing a foundation for future research and policymaking specific to this context.

Details

International Journal of Law and Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1754-243X

Keywords

Open Access
Article
Publication date: 19 February 2024

Mamekwa Katlego Kekana, Marius Pretorius and Nicole Varela Aguiar De Abreu

Business rescue, as a mechanism to aid financially distressed companies in South Africa, has received considerable academic and practical recognition. However, the business rescue…

Abstract

Purpose

Business rescue, as a mechanism to aid financially distressed companies in South Africa, has received considerable academic and practical recognition. However, the business rescue plan is an overlooked and, perhaps, underdeveloped aspect of the regime. For stakeholders, this is the ultimate decision-making document. Creditors are the most influential stakeholders in business rescue proceedings owing to their voting rights. For creditors to make informed decisions and exercise their votes meaningfully, the business rescue plan should be transparent and adequately disclose relevant and reliable information. This study aims to identify creditors’ primary information needs to enhance the sufficiency and decision-usefulness of business rescue plans, not only to entice the vote of creditors but to enforce accountability from practitioners.

Design/methodology/approach

Using a qualitative research design, semi-structured interviews were conducted with 14 executives from 10 South African financial institutions.

Findings

The findings reveal that comprehensive disclosure of financial, commercial and legal information in business rescue plans was a critical antecedent for stakeholder decision-making. Additionally, leadership and social impact information were influential determinants. This study advances academic knowledge and, for practitioners, adds value to the development of business rescue plans. This can enhance creditors' confidence in supporting the rescue effort and approving the plan.

Practical implications

This study advances academic knowledge and, for practitioners, adds value to the development of business rescue plans. This can enhance creditors' confidence in supporting the rescue effort and approving the plan.

Originality/value

The originality of this article lies in its investigation of how creditors assess the information in BR plans as a precursor to supporting the company’s reorganisation in a creditor-friendly business rescue system such as South Africa. This study provides novel insights into the decision-making process, particularly how creditors assess BR plans, address information asymmetry and vote on the plan.

Details

International Journal of Law and Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1754-243X

Keywords

Book part
Publication date: 19 October 2020

Kirsten Cook, Tao Ma and Yijia (Eddie) Zhao

This study examines how creditor interventions after debt covenant violations affect corporate tax avoidance. Using a regression discontinuity design, we find that creditor

Abstract

This study examines how creditor interventions after debt covenant violations affect corporate tax avoidance. Using a regression discontinuity design, we find that creditor interventions increase borrowers' tax avoidance. This effect is concentrated among firms with weaker shareholder governance before creditor interventions and among those with less bargaining power during subsequent debt renegotiations. Our results indicate that creditors play an active role in shaping corporate tax policy outside of bankruptcy.

Book part
Publication date: 23 November 2015

Nicolae Stef

In bankruptcy, a reorganization procedure is based on the terms of a reorganization plan aimed to save a financially distressed firm. We provide an original approach of the…

Abstract

In bankruptcy, a reorganization procedure is based on the terms of a reorganization plan aimed to save a financially distressed firm. We provide an original approach of the reorganization plan that we treated as a future contract that demands to creditors a certain degree of cost sharing. This paper examines how the sharing of the reorganization plan costs influences the bankruptcy outcome of such firm.

The sharing of the costs between creditors and debtor is analyzed by a static theoretical model that uses a Lagrangian approach.

We show that debtors have strong incentives to propose reorganization plans which provide an expected gain for creditors higher than the liquidation value of the firm and lower than the payment of the reorganization plan with an optimal sharing degree. Hence, a reorganization plan can be rejected by creditors if the sharing degree is too important.

The liquidation of the firm can be avoided if the design of the reorganization plan is improved by performing an appraisal or purchasing the services of an audit company.

The novelty of this paper resides in the distinction of two types of bankruptcy legal systems. The first one represents a pro-creditor or a creditor-friendly bankruptcy system in which the claimants’ payment is not limited to a fixed value written in the reorganization plan. Conversely, we treated the case of a debtor-friendly bankruptcy system which limits the creditors’ payment. The results of our model hold independently of the bankruptcy law orientation, that is, pro-creditor or pro-debtor.

Details

Economic and Legal Issues in Competition, Intellectual Property, Bankruptcy, and the Cost of Raising Children
Type: Book
ISBN: 978-1-78560-562-8

Keywords

Book part
Publication date: 20 March 2023

Milan Rivie

With the debt crisis that has been impacting many countries in the Global South since 2015, its spectacular acceleration following the collateral effects of the COVID-19 pandemic…

Abstract

With the debt crisis that has been impacting many countries in the Global South since 2015, its spectacular acceleration following the collateral effects of the COVID-19 pandemic, and the ever-increasing weight of “new” creditors (China, Gulf countries, and private creditors), the old debate for the creation of an international sovereign debt restructuring mechanism under the aegis of the United Nations has resurfaced. Although such a mechanism could constitute a real advance compared to the current situation, it remains very hypothetical, both because of its limits and because of the complexity of the process to be undertaken in view of the adoption of an international treaty endorsing its creation. Above all, it ignores the sovereignty of states and the right to self-determination of peoples. Other solutions exist, which are less complicated, less expensive, and not at all less legitimate, among which the establishment of a moratorium with interest freeze and the creation of an audit committee with citizen participation aiming at canceling or repudiating the illegitimate debts with regard to international law and national legal provisions.

Details

Imperialism and the Political Economy of Global South’s Debt
Type: Book
ISBN: 978-1-80262-483-0

Keywords

Article
Publication date: 3 August 2023

James Routledge

The objective of this study is to investigate the relationship between trade credit supply and financial distress outcomes, considering the role that trade credit plays as a…

Abstract

Purpose

The objective of this study is to investigate the relationship between trade credit supply and financial distress outcomes, considering the role that trade credit plays as a substantial source of liquidity for distressed companies. Specifically, it examines whether there is an association between trade credit supply and the outcomes experienced by companies that undergo the voluntary administration (VA) insolvency procedure under Australian corporate law.

Design/methodology/approach

The study examines a sample of companies that were listed on the Australian Securities Exchange and entered VA between 2002 and 2019. Ordered logistic regression is used to determine the relation between trade credit and VA outcomes. The VA outcomes considered are as follows: (1) company liquidation, (2) orderly dissolution through an agreement with creditors, or (3) an agreement with creditors for reorganization of all or part of the company's business.

Findings

The findings show that trade creditors' willingness to supply credit is influenced by their rational expectations about the future prospects of financially distressed customers. Higher levels of trade credit and an increase in trade credit supply prior to VA are associated with a greater probability of achieving a reorganization versus a liquidation or dissolution outcome.

Originality/value

There is no apparent prior study investigating the connection between trade credit supply and outcomes for distressed companies entering insolvency administration. Therefore, this study provides novel evidence on the role of trade credit in the context of financial distress. Understanding the relationship between trade credit supply and outcomes is particularly significant considering that many jurisdictions offer distressed companies the opportunity to pursue reorganization under their insolvency laws. Examining financial distress and trade credit in the Australian creditor-friendly context expands on existing research. Prior research has predominantly relied on data from the United States, which has debtor-friendly bankruptcy law. Consequently, these studies may lack generalizability to jurisdictions with creditor-friendly law such as Australia.

Details

Journal of Accounting Literature, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0737-4607

Keywords

Article
Publication date: 12 August 2022

Thim Wai Chen, Ruzita Azmi and Rohana Abdul Rahman

In response to the housing needs of its people, Malaysia has allowed private housing developer companies to build houses on a sell-then-build basis. Despite having legislation…

Abstract

Purpose

In response to the housing needs of its people, Malaysia has allowed private housing developer companies to build houses on a sell-then-build basis. Despite having legislation designed to protect the interests of purchasers, insolvent housing developers have left behind many uncompleted housing projects with their land charged to financial institutions. Consequently, the affected purchasers will lose their houses when those financial institutions foreclose on the land in the housing projects. In addition, those purchasers remain legally obligated to repay loans taken to finance their house purchase. The housing development laws lack provisions to rehabilitate abandoned housing projects. The purpose of this paper is to explore the viability of rescue mechanisms in the Companies Act 2016, being corporate voluntary arrangement (CVA), judicial management (JM) and schemes of arrangement (SOA), to aid in the rehabilitation of abandoned housing projects in Peninsular Malaysia.

Design/methodology/approach

Doctrinal research is adopted in this paper.

Findings

This research highlights the flexibility of the SOA as a tool to rehabilitate abandoned housing projects. This research also reveals the potential of CVA and in particular, JM with its “public interest” feature, as useful rehabilitation mechanisms once the proposed reforms are adopted.

Originality/value

The authors are hopeful that the suggested reforms will enhance the value of all three rescue mechanisms as rehabilitation tools for abandoned housing projects so as to alleviate the plight of house purchasers.

Details

Journal of Property, Planning and Environmental Law, vol. 14 no. 2/3
Type: Research Article
ISSN: 2514-9407

Keywords

Article
Publication date: 28 February 2023

Nemiraja Jadiyappa and Ram Kumar Kakani

The purpose of this paper is to examine how changes in creditors' rights affect the dividend policy behavior of corporate firms.

Abstract

Purpose

The purpose of this paper is to examine how changes in creditors' rights affect the dividend policy behavior of corporate firms.

Design/methodology/approach

The authors use the implementation of the bankruptcy and insolvency code (IBC) in India in 2016 as a quasi-natural experiment setup. Differential application of this law allows them to use the Difference in Differences approach to extract the marginal impact of change in creditors' rights on the dividend policy.

Findings

The authors show that firms responded to strengthening creditors' rights by decreasing their dividend payout. Further, the authors observe that this negative response is conditioned on firm leverage and the nature of the creditor, i.e. public or private. The firms with a greater leverage ratio and a greater proportion of private debt in the total debt in the pre-event period have shown greater response to the change in the law. Lastly, the authors show that stock markets positively respond to the observed decrease in dividends only when a corresponding decrease in the leverage accompanies such a decrease.

Originality/value

The authors contribute to the finance and law literature from several aspects. First, the authors extend this stream by bringing to light the dividend policy response of firms when they are subjected to a change in creditors' rights. Second, the authors also show how firm-level factors like financial policy and the nature of the creditor condition their response to IBC. Lastly, the authors also examine the market reaction to the dividend policy response of firms to the change in bankruptcy law.

Details

International Journal of Managerial Finance, vol. 19 no. 5
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 20 July 2022

Daniel Tut

This paper addresses the following questions: Why do some firms employ multiple debt types? What explains debt heterogeneity? Is the choice of the source of debt a function of…

Abstract

Purpose

This paper addresses the following questions: Why do some firms employ multiple debt types? What explains debt heterogeneity? Is the choice of the source of debt a function of corporate governance?

Design/methodology/approach

The author's paper is empirical and uses multiple regression analysis.

Findings

Firms under weak corporate governance have a higher propensity to use multiple debt types and have a dispersed debt structure. Contrastingly, firms that are well-managed tend to concentrate debt and borrow predominantly from a few creditors. The author also found that while bank debt is negatively associated with debt concentration, market debt is positively associated with debt concentration.

Research limitations/implications

Firms under weak corporate governance have a higher propensity to use multiple debt types and have a dispersed debt structure. Well-managed firms tend to concentrate debt and borrow predominantly from a few creditors. Bank debt is negatively associated with debt concentration and market debt is positively associated with debt concentration.

Practical implications

Policymakers and practitioners need to account not only for changes in the firm’s total debt level but also for changes within the firm’s debt composition. Understanding a manager’s choice of debt structure can incentivize creditors to effectively monitor and use debt concentration as a form of commitment device that transfers some control rights from the manager to creditors.

Originality/value

While a vast body of corporate finance literature examines the conflict between shareholders and management, there is little empirical work on the conflict between creditors and management. In this paper, the author examines how managerial entrenchment affects debt structure. The results provide a comprehensive picture of how corporate governance influences debt choice(s).

Details

International Journal of Managerial Finance, vol. 19 no. 4
Type: Research Article
ISSN: 1743-9132

Keywords

Open Access
Article
Publication date: 9 June 2021

Fahad Alarifi

The purpose of the paper is to analyze the new Bankruptcy Law in Saudi Arabia (KSA Bankruptcy Law) under both a comparative lens and a policy-oriented one, while highlighting some…

3170

Abstract

Purpose

The purpose of the paper is to analyze the new Bankruptcy Law in Saudi Arabia (KSA Bankruptcy Law) under both a comparative lens and a policy-oriented one, while highlighting some of the most essential operational steps and procedures in a bankruptcy proceeding under the law.

Design/methodology/approach

The approach adopted analyzes the specific mechanics and procedures of a bankruptcy law under the general policies and goals of bankruptcy. Additionally, where appropriate, a brief comparison to the US Bankruptcy code and its provisions is presented to provide an alternative approach on how similar issues are handled under a reputable and proven bankruptcy system.

Findings

Overall, the KSA Bankruptcy Law is a major accomplishment and advancement to the Kingdom’s insolvency regime. The law consolidated and codified the laws governing bankruptcy under the Kingdom’s prior regime, and followed the structure of a modern bankruptcy regime. In doing so, several of the law’s policies and objectives have been fulfilled by providing an effective, predictable and reliable bankruptcy system.

Originality/value

Given the relatively recent adoption of the KSA Bankruptcy Law, the paper provides a comprehensive assessment of the law’s operation and its effectiveness in achieving its policy goals as a modern bankruptcy law.

Details

PSU Research Review, vol. 7 no. 3
Type: Research Article
ISSN: 2399-1747

Keywords

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