Mr. Andres Federico Martinez
Senior Financial Sector Specialist

Andres F. Martinez is a senior fi nancial sector specialist with the World Bank’s Insolvency and Debt Resolution team, in the Finance, Competitiveness and Innovation (“FCI”) Global Practice.

Andres has been a lawyer for over 20 years, has a master’s degree in Corporate law and specialises in insolvency and creditors’ rights. For over 12 years, Andrés has been advising countries from Latin America, Middle East, Europe and Asia on legal reforms with focus on debt recovery, insolvency laws and workout mechanisms.

Before joining the World Bank in 2008, Andres worked in private practice representing large creditors in debt recovery and insolvency cases.

Andres has published extensively, is an “INSOL Fellow”, is a member of the International Insolvency Institute, a member of the international advisory committee of the Singapore Global Restructuring Initiative (SGRI), co-chairs the World Bank Insolvency Task Force and Chairs the World Bank and INSOL International Legislative and Regulatory Colloquium.

THE IMPORTANCE OF PREDICTABLE INSOLVENCY SYSTEMS

Professionals engaged in restructuring and liquidation processes, at the same time, contribute indirectly to macroeconomic activities. Insolvency systems are crucial in distinguishing between viable companies that should be reorganised and preserved, and nonviable ones that should exit the market promptly, allowing for the swift reallocation of their assets to more productive activities¹Principles for Effective Insolvency and Creditor and Debtor Regimes (English). Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/391341619072648570/Principles- for-Effective-Insolvency-and-Creditor-and-Debtor-Regimes. The sum of these individual cases, as well as their publicity, contributes to foster the development of a predictable system. Predictable and efficient insolvency systems yield numerous benefits, such as improved access to and reduced costs of credit, the encouragement of entrepreneurship, the maintenance of financial stability, and the creation and preservation of better jobs, among others²World Bank Group. 2014. “Insolvency Reform for Credit, Entrepreneurship and Growth.” Insolvency & Debt Resolution Viewpoint. World Bank, Washington, DC. They also help the creation or strengthening of a system of distressed assets³DARP—Creating Distressed Assets Markets – Lessons Learned Since the Global Financial Crisis and Opportunities for Investors in Emerging Markets Today. Available in: https://www.ifc.org/ content/dam/ifc/doc/mgrt/201910-distressed-assets-recovery-program.pdf.

Predictability is often linked to the robustness of bankruptcy laws, but this is only part of the equation. For predictability to be achieved, several other elements must be in place. Firstly, all institutions involved must possess a degree of specialisation. This requirement extends beyond judges and insolvency practitioners to include advisors and the broader legal and business communities. Secondly, insolvency decisions must be publicly accessible to establish precedents. Even in jurisdictions where precedents are not legally binding, they contribute to the system’s credibility and provide a reference on how similar cases are likely to be resolved in the future. The more predictable the system, the more likely financial distress will be resolved by means of out-of-court workouts⁴A Toolkit for Corporate Workouts (English). Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/982181642007438817/A-Toolkit-for-Corporate-Workouts.. Lastly, authorities must collect and disseminate insolvency data⁵IMF Working Paper Legal Department “The Use of Data in Assessing and Designing Insolvency Systems.” https://www.imf.org/en/Publications/WP/Issues/2019/02/04/The-Use-of-Data-in-Assessing- and-Designing-Insolvency-Systems-46549. Globally, there is a lack of comprehensive data on critical aspects such as the value of assets and debts managed in reorganisation and liquidation proceedings, or the average duration from case initiation to plan approval or rejection, just to cite two examples. Large-scale data collection is essential to identify bottlenecks, guide legal reforms, and assess their impact. Legal systems are increasingly recognising the importance of this practice. For instance, the EU Directive on restructuring and insolvency, already transposed in the domestic legal system by all EU member countries, lists a series of data collection activities that countries will undertake on key aspects of insolvency procedures⁶Art. 29 of the Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on Restructuring and Insolvency https://eur-lex.europa.eu/eli/dir/2019/1023/oj.

With insolvencies on the rise worldwide, the demand for predictable insolvency systems has intensified. In the Eurozone, bankruptcies in Q4 of 2023 reached their highest level since 2018⁷Compared to the previous quarter. Eurostat, ‘Quarterly registrations of new businesses and declarations of bankruptcies – statistics’. Available at: https://ec.europa.eu/eurostat/statistics-explained/ index.php?title=Quarterly_registrations_of_new_businesses_and_declarations_of_bankruptcies_-_statistics#Quarterly_comparison_in_the_EU_and_euro_area, and in the US, commercial chapter 11 filings saw a 28 percent increase in April 2024⁸From April 2023 levels. American Bankruptcy Institute, ‘Bankruptcy Statistics’. Available at: https://www.abi.org/newsroom/bankruptcy-statistics. As highlighted in our foreword article⁹https://beaumont-capitalmarkets.co.uk/featured_item/international-insolvency-and-restructuring-review-2023-24/ last year, should non-performing loans (NPLs) increase significantly, several pillars need to be examined by authorities to help address high NPLs¹⁰Dijkman, M., A. Martinez, V. Salomao, and K. Bauze. 2020. “COVID-19 and Non-Performing Loan Resolution in the Europe and Central Asia Region: Lessons Learned from the Global Financial Crisis for the Pandemic.” Policy Note, December 2020, World Bank, Washington, DC. https://thedocs.worldbank.org/en/doc/460131608647127680-0130022020/original/FinSACCOVID19andNPLPolicyNoteDec2020. pdf ., including an environment that encourages workouts¹¹Enterprise workouts as well as their enabling environment was the topic of the recent World Bank Insolvency & Creditor/Debtor Regimes ICR Task Force (May 2024). as well as debt restructurings (including favourable or neutral tax treatment), protected creditors’ rights, a legal environment conducive to NPL sales and, of course, efficient and predictable insolvency proceedings.

The World Bank Principles for Effective Insolvency and Creditor/Debtor Regimes and the UNCITRAL Legislative Guide on Insolvency Law have been recognised by the Financial Stability Board as representing the international consensus on best practices for evaluating and developing national insolvency regimes. To reap the benefits of robust insolvency regimes, it is imperative for more countries to adopt legal frameworks aligned with international best practices and to continue strengthening the institutions responsible for enforcing their laws, with the ultimate goal of establishing predictable insolvency systems.