Micro- and small enterprises (MSEs) represent the majority of businesses in most countries around the world. Despite the economic relevance of MSEs, most jurisdictions – including most advanced economies – do not provide a suitable insolvency framework for MSEs. This chapter starts by analyzing the particular features of MSEs as well as the need to provide them with a simplified insolvency framework. It then discusses the solutions and policy recommendations that the academic literature and various international organizations have suggested for the design of a simplified insolvency regime for MSEs. The chapter concludes by suggesting different policy recommendations for the design of an efficient insolvency framework for MSEs in the context of emerging economies.

This chapter provides a general overview of the market and institutional environments existing in emerging economies. Despite the divergences existing across jurisdictions, this chapter shows that most emerging economies share some common features, including the existence of an institutional environment that generally comprises inefficient judicial systems, high levels of corruption, low levels of protection of property rights, and a weak rule of law. Other features commonly found in emerging economies include the existence of underdeveloped financial systems and the prevalence of micro- and small enterprises and large controlled firms. This chapter, and therefore the understanding of the market and institutional environments existing in emerging economies, will provide the basis for the understanding of the insolvency framework for emerging economies suggested in this book.

This chapter starts by explaining that, when a company becomes factually insolvent but it is not yet subject to a formal insolvency proceeding, the shareholders – or the directors acting on their behalf – may engage, even in good faith, in various forms of behavior that can divert or destroy value at the expense of the creditors. Moreover, the individual behavior of certain creditors can also destroy or divert value in a situation of financial distress. For this reason, most jurisdictions around the world respond with a variety of strategies, including the imposition of special directors’ duties in the zone of insolvency. The chapter identifies six regulatory models for the design of directors’ duties in the zone of insolvency. After exploring the advantages and weaknesses of each regulatory model, the chapter analyzes a variety of country-specific and firm-specific factors that may affect the desirability of a particular regulatory approach. It concludes by suggesting various policy recommendations for the design of directors’ duties in the zone of insolvency taking into account the particular features of emerging economies.