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Firstly, a bankruptcy commissioners independence is by no means an independence from the law, which requires that property rights be protected in every possible way. The powers of bankruptcy commis sioners, after the decision concerning the liquidation of a bankrupt company has been made, must be sufficient for preventing asset with drawal to be effectuated by its owners or CEOs. In this connection, an optimal bankruptcy mechanism must envisage not only strict responsi bility of the commissioners, but also an efficient supervision over the performance of their functions.

Secondly, clarity and transparency of reporting, as well as of the documents concerning the registration of the bankrupt companys property, are among the most necessary prerequisites for adequate protection of creditors interests (and for a realistic assessment of the plans for the companys reorganization). Meanwhile, it is exactly the interest in asset withdrawal that causes incorrect reporting, as well as deliberately complicated and incomplete information concerning the companys registered property.

Any attempts to struggle against this phenomenon by applying purely administrative measures, for example by punishing for premeditated bankruptcy, have turned out to be purely declarative, since in most instances the actions that may result in a companys bankruptcy can be likened to an erroneous choice of a strategy and undequate profes sional qualification of the managerial personnel.

And thirdly, the need to protect property rights has also resulted in the requirement that bankruptcy procedures be completed within the shortest possible period of time. Thus, the procedures established in some West European countries prescribe that CEOs register their com pany as bankrupt immediately after its insolvency has been revealed.

Serious sanctions, even criminal responsibility and imprisonment, are envisaged for those CEOs who have allowed a substantial delay in bankruptcy registration. Very short periods for the judicial procedures in bankruptcy are established as a mandatory norm. The longer the pe riod of the proceedings in bankruptcy, the slimmer is the chance that a bankruptcy commissioner will be able (and genuinely willing) to prevent covert plundering of the companys property, and the less secure are property rights.

During the past century, several serious studies were undertaken in order to see how legal structures influence the processes of economic growth and the development of financial markets48. One of the areas for such research is the analysis of bankruptcy procedures and their im pact on the debt market. Based on the results of those studies, R. La Porta and F. Lopez de Silanes conducted a comparative analysis of the legal norms on bankruptcy existing in 49 countries. In order to assess the degree of protection of creditors rights in each of these countries, four indices were applied in the analysis:

1) Is there an automatic suspension, for a certain period of time, of the claims to the debtor after the proceedings in bankruptcy have been initiated (no 1 point, yes 0), 2) Is there a priority for satisfying the claims of the creditors with mortgage notes (legislation does envisage such a priority 1 point, no priority 0), 3) Can the plans for reorganizing a bankrupt company be accepted for consideration without the creditors approval (no 1 point, yes 0);

and, finally, See, e.g., La Porta R., F. Lopes de Silanes, A. Shleifer, R. Visny Legal Determinants of External Finance. The Journal of Finance, 1997. Vol. 52, pp. 11311150; La Porta R., F. Lopes de Silanes, A. Shleifer, R. Vishny Law and Finance. Journal of Political Econ omy, 1998. Vol. 106, pp. 11131155; La Porta R., F. Lopes de Silanes, A. Shleifer, R.

Vishny Investor Protection: Origins, Consequences, and Reform. Journal of Financial Economics, 2003; Beck T., A. Demiguc Kunt, R. Levine Law, Endowments and Finance. Journal of Financial Economics, 2003. Vol. 58, etc.

4) Can the CEOs of a bankrupt company handle its property while making the decision as to the companys reorganization (no 1 point, yes 0).

After comparing the answers to these questions offered by legisla tions existing in different countries, it can be stated than in many coun tries with nascent markets the creditors rights appear to be inade quately protected. Thus, the total number of points in respect to Mex ico, Columbia, Peru and the Philippines amounts to zero (none of the requirements is satisfied), in respect to Argentina, Brazil, Greece and Portugal to one, while in the UK the country which serves as a stan dard for creditors rights protection it is as high as four (all the four requirements are satisfied).

It has already been noted above that creditors rights protection represents only one of the necessary aspects of an optimal bankruptcy procedure, and so it would hardly make sense to limit this analysis just to the results of the comparison described above, the problem in itself being far more complex. It would suffice to note that in France, where bankruptcy procedures are clearly biased toward the reorganization of bankrupt companies, the total number of points is also zero, whereas in the USA it is 1, and in Germany 3.

The formally similar indices may mask the existence of qualitatively different processes. The low numbers of points calculated for countries with nascent markets have demonstrated (in contrast to the majority of developed countries) unreliable credit relations and inadequate effi ciency of bankruptcy procedures. In Mexico and Peru (as well as in Russia) private creditors can recover, in the course of bankruptcy, no more than 36% of their loaned funds. As for bankruptcy procedures as such, in Mexico and Peru they may last for a period of between three and seven years, while in Thailand for more than ten years.

In countries like the USA and France, certain limitations imposed on the creditors rights (at least as believed by those who support the exis tence of such procedures) are capable of promoting the opportunities for maintaining and reorganizing a bankrupt company. In countries with nascent markets, including many transition economies, reorganiza tion procedures are quite often applied to non viable economic structures emptied by the insiders. In such instances, not only reorgani zation, but at least the revival of economic operations and the mainte nance of socially relevant enterprises represents a very hard task to achieve. As noted by R. La Porta and F. Lopez de Silanes, without an efficient bankruptcy procedure the enterprises that face serious finan cial trouble may stay in limbo, being able neither to restructure their debts, nor to mobilize the resources needed for implementing new pro jects49.

The inadequate efficiency of property rights protection, which re veals itself, in particular, in less than optimal bankruptcy procedures, may unfavorably influence the processes of economic growth. Some areas of such influence have been already mentioned in our previous discussion; by way of conclusion, we are going to simply list those channels of influence that are believed to be the most important ones.

Due to the uncertainty in respect to property rights, which temporar ily becomes obvious in a situation when a borrower company becomes insolvent, bankruptcy becomes a potent instrument of redistributing owners and shareholders control. As a matter of fact, when bank ruptcy practice is less than optimal, such redistribution may result, and actually does result, in inefficient decisions. The evidence of this is the tendency to create huge and poorly managed economic empires (conglomerates), which can be seen in some countries; these em pires grow at the expense of a variety of enterprises, the control over which has been achieved as a result of subjecting them to bank ruptcy.

On the other hand, too soft (sparing) bankruptcy procedures can, in fact, undermine the action of the mechanisms designed to ensure marker discipline, and under conditions of an economy in transition to impede the transition from soft to hard budget constraints50. The possi bility to accumulate stale debts for a long period of time can create es pecially favorable conditions for destructing companies from inside and withdrawing a part of assets from a company which continues to function despite its revealed insolvency. The devastating epidemics of non payments, which have sometimes been springing up in Russia La Porta R., F. Lopes de Silanes Creditor Protection and Bankruptcy Law Reform in:

Resolution of Financial Distress: An International Perspective of the Design of Bank ruptcy Laws Ed. by S. Claessens, S. Djankov, A. Mody. World Bank Washington, 2001, p. 79.

See, e.g., Roland G. Transition and Economics: Politics, Markets, and Firms The MIT Press: Cambridge, Mass 2000, Chapter 9.

and some other countries with economies in transition, considerably restrained the development of market relations51.

The limited possibilities for insuring credit risks by applying purely market mechanisms have already been mentioned. The rules for regu lating the problems that inevitably arise in the event of a companys in solvency that are centralized, equal for all the participants, and stable, have always been regarded as one of the most important components of the infrastructure ensuring an efficient functioning of financial inter mediaries and the securities market. Therefore, less than optimal bank ruptcy procedures represent a serious obstacle in the way of the devel opment of the debt market, which, in its turn, considerably limits the opportunities for financing new capital investments.

See Coricelli F., G. M. Milesi Ferreti On the Credibility of Big Bang Programs: A Note on Wage Claims and Constraints in Economy in Transition. European Economic Re view, 1993. Vol. 37, pp. 387395; Karpov P. O prichinakh nizkoi sobiraemosti nalogov (neplatezhei fiskalnoi sisteme), obshchikh prichinakh krizisa neplatezhei i vozmozhnosti vosstanovleniia platezhesposobnosti rossiiskikh predpriiatii. Otchiot mezhvedomstvennoi balansovoi komissii. (On the causes of low tax collection (non payments in the fiscal system), the general causes of the crisis of non payments and possibilities of restoring solvency of Russian enterprises. Report of the Inter Departmental Balance Commis sions). Moscow, 1997.

Chapter 2. Main legal phases in the development of the institution of insolvency in contemporary Russia 2.1. Traditional models and specific features of the economy in transition Regulation of insolvency represents the most rapidly developing area of law in foreign developed countries, while the national econo mies are promoting continual updating of appropriate norms52. The main purpose of the institution of insolvency is to ensure a predictable distribution of risks for the creditors. Theoretically, the legal norms de signed to regulate insolvency of enterprises may pursue the following goals:

protecting creditors rights, ensuring financial discipline, improving the reliability of credit circulation;

lowering the level of economic risks in the economy through liqui dating inefficient works;

ensuring redistribution of industrial assets in favor of efficiently op erating enterprises, developing competition;

effectuating reorganization of enterprises and their financial re structuring;

improving the quality of corporate governance, replacement of in efficient owners;

ensuring the replacement of poorly qualified managers, and intro ducing a rational management system at enterprises.

It should be noted that the effectuation of bankruptcy procedures always means losses to the creditors, the debtor enterprise, its owners, and the State. Foreign countries with developed economies are no ex ception in this respect. The possibilities offered by bankruptcy in terms of reforming a business and replacing its inefficient owner are quite limited, its main purpose being that of liquidating inefficient sources of production, redistributing irrationally used assets and lowering the eco nomic risks in the economy.

See Teliukina M. Osnovy konkursnogo prava (The basics of bankruptcy law). M., Volt ers, Kluver, 2004, p. 7782. Stepanov V. Nesostoiatelnost (bankrotstvo) v Rossii, Frant sii, Anglii, Germanii. (Insolvency (bankruptcy) in Russia, France, England, Germany). M., Statut, 1999.

The experience of foreign developed countries does not make it possible to unequivocally assert that the regulation of insolvency should be based on creditors priority. A characteristic feature of most of the contemporary developed systems for regulating insolvency consists in the presence and further development of rehabilitative procedures de signed to maintain a business, as an addition to the classical bank ruptcy mechanism that involves the selling out of the debtors assets as part of bankruptcy procedures.

In principle, all insolvency and bankruptcy systems may be subdi vided into two mutually opposing categories: pro debtor (USA, France) and pro creditor (UK, Germany)53.

Thus, the German model is oriented toward improving the efficiency of satisfying creditors claims, the rehabilitative procedures being aimed at maximizing the debtors assets for their subsequent redistri bution among the creditors. The typical UK model is oriented toward protecting credit circulation and creating efficient effectuation of bank ruptcy procedures, the enterprise is being controlled by a third party acting on behalf of the creditors. An obvious drawback of this model is the explicit promotion of an enterprises liquidation instead of its reha bilitation, since the creditors are primarily interested in selling the as sets of a company in financial trouble, and not in its rescue.

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