true insolvency of the actually functioning enterprises. The main bulk of the petitions in bankruptcy filed in 2000–2002 were associated with im plementing simplified bankruptcy procedures against absent debtors152, which has no relation whatsoever to issues like the losses suffered by large (socially important) enterprises, property redistribution, premedi tated bankruptcies. Thus, the proportion of bankruptcy cases in respect to absent debtors or the debtors being liquidated in the total number of petitions in bankruptcy filed against debtors in 2002 was almost as high as 89%153 (while in 2000 – 58%, in 2001 – 82%).
Petitions filed that debtor be deemed to be bankrupt Of these, total number of accepted for hearing Of these, total number of 8538 accepted for hearing with imposing observation 1998 1999 2000 2001 Fig. 3. Changes in the number of submitted and accepted petitions, and proceedings in bankruptcy being initiated against genuine debtors Alongside the “overall” spread of bankruptcy procedures, they were also becoming more diversified in terms of their objects; thus, in 1999– 2002, the proportion, within the total number of petitions, of the peti Kuznetsov B., Simachiov Yu. Praktika i rezultaty bankrotstva (Practice and results of bankruptcy). In: Rossiskaiia promyshlennost': institutsinal'noe razvitie (Russian industry:
institutional development). – M: “TEIS”. – 2002.
More than 85 percent point in 2002 were constituted by bankruptcy cases in respect to absent debtors, and less than 4 percent point – by bankruptcy cases in respect to debtors being liquidated.
tions filed against agricultural organizations, farms and individual entre preneurs was growing, while almost at the same time, in 2001–2002, the proceedings in bankruptcy against city forming enterprises became less numerous (down to 40–60 cases per annum).
Table Proportion of petitions files in respect to some debtor categories Petitions in bankruptcy in respect to different debtor categories in total amount of filed Debtor category petitions in bankruptcy, less those filed in respect to debtors being liquidated and absent debtors, % 1998 1999 2000 2001 Agricultural organiza tions 3.79 3.79 5.66 7.77 11.Individual entrepre neurs 1.15 1.35 1.42 3.77 5.Peasants’ (farmers’) farms 0.41 0.72 1.85 3.32 9.City forming organi zations 1.40 1.06 0.40 0.19 0.According to our estimations, the number of petitions in bankruptcy filed in respect to actually operating enterprises in industry, commerce, transport (we apply to them the arbitrary name – “substantive”) and ac cepted for hearing were as follows: in 1998 – up to 5000, in 1999 – up to 6000, in 2000 – up to 7000, in 2001– up to 7500, in 2002 – up to 7500154. Thus, it would not be incorrect (to put it mildly) to speak of any dramatic rise in the number of bankruptcies of industrial enterprises occurring in recent years.
By the intensity of their application, bankruptcy procedures are “pin pointed” and do not achieve, at the macrolevel, the goal of withdrawing inefficient enterprises from the market. The proportion of enterprises in respect to which bankruptcy procedures are effectuated is negligible, as compared to the total number of economic subjects (on the average, out of every 200 enterprises, only one is being bankrupt), especially if these figures are compared to the number of loss making enterprises.
In the years 2001–2002, the continuation of growth in the number of accepted petitions in bankruptcy, with subsequent introduction of supervision, was due to a considerable rise in the number of petitions filed against agricultural organizations and peasants’ (farmers’) farms.
Table Estimated intensity of applying bankruptcy procedures to economic subjects, region wise Number of enterprises in respect to Reference:
which bankruptcy procedures are number of loss making effectuated, per 1,000 enterprises enterprises, per 1,Federal Okrugs (Okrug’s average) enterprises in as of as of (Okrug’s average) 1 January 2001 1 January Central Federal Okrug 3.4 2.7 North Western Federal 6.4 4.3 Okrug Southern Federal Ok 7.8 3.8 rug Volga Federal Okrug 9.6 5.8 Urals Federal Okrug 4.4 3.0 Siberian Federal Okrug 10.7 6.1 Far Eastern Federal 14.5 8.7 Okrug Russian Federation 6.7 4.2 However, the “pin pointed” character itself is the main object of criticism, since bankruptcy procedures are oriented toward large, po tentially efficient enterprises. Besides, the intensity “span” across Rus sian regions is very variable (and is still becoming wider). Just note the following estimates: as of 1 January 2001, the number of bankruptcy cases per 1000 enterprises in Moscow was 0.92, in St. Petersburg – 0.85, while in the Republic of Altai – 65.9, and in the Republic of Sakha (Yakutia) – 53.1. Thus, in some Russian regions, the scope of bank ruptcy can be considerable.
Now let us consider the results of applying different bankruptcy pro cedures to debtors.
The main trend in applying the procedure of observation is that of a growing percentage of the decisions concerning initiation of the pro ceedings in bankruptcy (especially in 2002) and a decline in the number of those concerning the imposition of external administration. On the whole, as seen by the results of 2002, only about 5% of enterprises “came out of bankruptcy” in the course of the observation procedure, 10% – became subject to the reorganization procedure (external ad ministration), while almost 80% entered the phase of bankruptcy pro ceedings (sale of property and liquidation of the business).
Table Results of applying supervision procedure Number of decisions in respect to specific Main variants of decisions, by variant, as % of total number of decisions results of effectuating supervi sion procedure 1998 1999 2001 Initiation of bankruptcy proceed 59.3 60.4 66.7 73.2 79.ings Imposition of external admini 21.8 17.9 13.9 13.2 10.stration Termination of proceedings due to approval of amicable settle 4.7 6.3 5.1 4.2 1.ment Termination of proceedings 8.5 9.3 9.8 5.8 3.Refusal to deem debtor to be 4.2 4.0 3.4 3.1 2.bankrupt Other 1.5 2.2 1.0 0.6 2.Total number of decisions made during effectuation of supervi 3200 5938 7156 8412 sion procedures The results of applying the procedure of external administration ap pear to be rather controversial. During the period of 1998–2002, every year the procedures of external administration were imposed on 1000– 1200 debtor enterprises (Table 9). Until 2002, the practice of resorting to amicable settlements was gradually becoming more common, but simultaneously the specific weight of the decisions concerning the ini tiation of bankruptcy proceedings was also growing.
In 2002, rather noticeable negative developments occurred in the effectuation of the procedure of external administration: resulting from such procedures, no more than 10% of enterprises “came out of bank ruptcy” (in 2001 – about 20%), more than 30% – remained under this reorganization procedure due to its prolongation, while 60% transited into the liquidation phase (whereas in 2001 – less than 50%). Not counting the decisions to the effect of extending external administra tion, then the “regidity” of this procedure (in terms of making the deci sions concerning a debtor’s liquidation) becomes approximately the same as in the case of observation. This is an evidence of a very low efficiency of the procedure of external administration in terms of reor ganizing and reforming a debtor’s business.
Table Results of applying the procedure of external administration Number of decisions in respect to specific Main variants of decisions, by re variant, as % of total number of decisions sults of effectuating external ad ministration procedure 1998 1999 2000 2001 Initiation of bankruptcy proceedings 48.8 33.7 42.5 48.3 58.Period of external administration ex 15.3 30.7 24.1 21.3 21.tended by 6 months Period of external administration ex 15.6 16.3 14.8 10.8 9.tended by more than 6 months Termination of proceedings due to 6.6 12.9 13.9 16.9 7.approval of amicable settlement Termination of proceedings due to 9.9 4.3 2.3 2.7 1.restored solvency Termination of proceedings 3.8 2.0 2.4 0.0 1.Total number of decisions made dur ing effectuation of external admini 695 1523 2135 1922 stration In 2002, within the framework of bankruptcy proceedings, only 0.3% of bankruptcy cases were closed by way of an amicable settlement.
Such a low proportion of amicable settlements within the framework of this procedure is largely due to the fact that it is the procedure of bank ruptcy proceedings that “receives” the “flow of cases” in respect to ab sent debtors or debtors being liquidated, which thus bypasses all other procedures. While in 1998–1999 at the “input” of bankruptcy proceed ings the ratio between “substantive” debtors to absent debtors was about 1:1, in 2000 it became about 1:2, in 2001 – about 1:4, and in 2002 – 1:10.
Even if we disregard those debtors that undergo a simplified bank ruptcy procedure, still, according to our gross estimation, bankruptcy proceedings result in an amicable settlement, at most, in 1 or 2 cases out of 100.
Table Results of applying bankruptcy proceedings Number of decisions in respect to specific Main variants of decisions, by re variant, as % of total number of decisions sults of effectuating proceedings in bankruptcy 1998 1999 2000 2001 Bankruptcy proceedings completed 77.1 66.8 66.7 70.3 77.Period of bankruptcy proceedings ex 12.6 23.6 22.3 21.0 16.tended for 6 months Period of bankruptcy proceedings ex 7.2 8.4 10.3 8.2 6.tended for more than 6 months Amicable settlements approved 3.1 1.2 0.7 0.5 0.Total number of decisions made during effectuation of bankruptcy proceed 1479 5818 12325 22752 ings, and such proceedings completed When considering on the whole the “outcome” of all bankruptcy pro cedures, it can be noted that in a vast majority of cases they result in the sale of a debtor’s assets in the course of bankruptcy proceedings. In deed, the visible dramatic rise in the proportion of outcomes in the form of bankruptcy proceedings in the total number of completed bank ruptcy cases, once again, is associated mainly with the growth in the number of petitions in bankruptcy in respect to absent debtors. Accord ing to the FSFRB, in the first half year of 2002, about 90% of the total number of completed bankruptcy cases resulted in the debtor’s liquida tion, and 2/3 of the organizations liquidated during that period were ab sent debtors.
At the same time, within the framework of both the procedure of ex ternal administration and, especially, that of supervision, an increase in the proportion of the decisions concerning the initiation of the proceed ings in bankruptcy was easily detected. In 2001–2002, there was a trend toward a reduction not only in the percentage, but also in the number of “positive outcomes” of bankruptcy procedures – the termi nation of proceedings, including as a result of an amicable settlement and restored solvency. Thus, the cause of the rise in the number of de cisions concerning the initiation of the proceedings in bankruptcy in respect to “substantive” debtors in 2001, and even more so, in 2002, was not a growing number of petitions, but rather a stronger orientation of the procedures of observation and external administration toward bankruptcy proceedings.
20000 1998 1999 2000 2001 Proceedings in bankruptcy completed Amicable settlement Solvency restored Proceedings terminated Other Fig. 4. Estimated “structure of outcomes” in bankruptcy procedures Number of initiated proceedings in bankruptcy, 12000 with supervision procedure (during one year) Total number of refusals to recognized debtors as bankrupt, amicable settlements, terminations of proceedings, including due to restored solvency (during one year) 1998 1999 2000 2001 Fig. 5. Ratio between number of “positive outcomes” and number of bankruptcy cases in respect to “substantive” debtors We believe it important to comment on the substantial dependence of the outcome of bankruptcy on the scope of a debtor’s business. Ac cording to our estimations, the larger and more important a business is, the more “sparing” are the bankruptcy procedures being applied to it.
Thus, we have found that in 2001 the bankruptcy procedures initiated in respect to large, economically or socially important enterprises resulted in bankruptcy proceedings being initiated approximately in one fourth of all cases, while in respect to the whole spectrum of “substantive” debtors – in two thirds.
100% Proceedings terminated, 90% petition recalled, claims satisfied 80% 70% Solvency restored 60% 50% 40% Amicable settlement concluded 30% 20% 10% Proceedings in bankruptcy completed 0% Large, economically Organizations which All organizations or socially important are not absent debtorganizations ors Fig. 6. Comparative estimation of “hardness” of bankruptcy procedures, de pending on debtor’s importance (2001) However, two circumstances must be taken in consideration in this connection. Firstly, while, on the average, the processes of bankruptcy involve a negligible portion of economic subjects, in respect to large enterprises their scope is much wider (in 1998–2001, a total of petitions in bankruptcy were filed against enterprises forming company towns). Secondly, even if a bankruptcy case involving a large enterprise does not culminate in bankruptcy proceedings, the business suffers substantial losses during the struggle for corporate control and/or as set withdrawal in the process of external administration (the period of which can be quite lengthy).
Generally speaking, bankruptcy procedures have demonstrated not only their very low efficiency in terms of business restructuring, but also a rather low potential for debt repayment to creditors155. As seen by the results of the first half year of 2001, the fourth priority creditors (in re spect to arrears of mandatory payments to the State), as a result of bankruptcy procedures, received only 7% of the total amount of their claims, while the fifth priority creditors (debts to creditors in bank ruptcy) – about 4% of their claims, these figures varying greatly from region to region. By the end of 2001, as estimated by the FSFRB, the degree of debt repayment to the State rose to 31% and to 24% – to creditors in bankruptcy; however, in the first half year of 2002 the index of stale debt repayment as a result of applying bankruptcy procedures, once again, declined to 15–17%.