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| Author: | Franks, J. Sussman, O. |
| Title: | Financial distress and bank restructuring of small to medium size UK companies |
| Journal: | Review of finance
2005 : VOL 9:1, p. 65-96 |
| Index terms: | Finance Banking Restructuring Small and medium-sized enterprises (SMEs) United Kingdom |
| Freeterms: | SME |
| Language: | eng |
| Abstract: | This paper uses a unique data set to study how U.K. banks deal with financially distressed small and medium-sized companies (SMEs) under a contractualist bankruptcy system. Unlike in the U.S., these procedures limit the discretion of courts to strict enforcement of debt contracts, without any dilution of creditors claims. It is shown that lenders and borrowers select a debt structure that avoids some of the market failures. Collateral and liquidation rights are highly concentrated in the hands of the main bank, giving it a dominant position in restructuring or liquidating a defaulting firm. There is little litigation, and no evidence of co-ordination failures or creditors runs. However, there is some reported evidence as to the banks dominance. |
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