Following the rapid demise of socialism, Eastern European countries have been grappling with the question of what kind of market economy is best suited to their future needs. Should they incorporate capitalism whole sale, and, If so, which kind: American, European, Japanese, or some new version? How should problems of the transition be handled? What kinds of institutional structures and laws are most appropriate for their situation?
This paper is concerned with an aspect of this last question: the choice of bankruptcy law. The decision facing Eastern European countries on this question is both important and far from straightforward. It is generally recognized by economists and lawyers in the West that bankruptcy law has an important role to play in ensuring a timely resolution of the problems of insolvent or financially distressed firms and a socially efficient disposition of such firms' assets. Yet both practitioners and academics are dissatisfied with current Western procedures, which are regarded either as favoring the piece-meal liquidation of healthy firms (in the case of Chapter 7 of the U.S. Bankruptcy Code, or the receivership system in the U.K.) or as being administratively very inefficient and costly (in the case of Chapter 11 reorganizations in the U.S.).
