Impact of debtor's default on financial stability of creditors

With respect to the default and subsequent bankruptcy of a debtor, creditor subjects are put into a position which usually forces them to make complex decisions, whilst numerous debtors have no great experience with these decision-making processes. In this sense, companies experienced in financial economics and, furthermore, other large companies with comprehensive experience are at an advantage in terms of information. Medium and smaller firms or even large businesses with a small number of customers have limited experience with debtor default, often based on mere mediated items of information or a very limited amount of their own experience.

Yet debtor default exerts pressure on creditors insofar as it is necessary to consider the next step, which is usually connected with greater or smaller expenses – in this sense it is important for entrepreneurial subjects to have some mechanisms or aids through which it would be possible to evaluate probable yield from insolvency proceedings. At present, there is nothing similar available, neither in the Czech Republic nor in developed countries. Nevertheless, it is precisely in the Czech Republic that relatively comprehensive research has been conducted; it enables estimation of yields for creditors, and a method is being prepared which, within several years, will enable any interested party to ascertain a great deal of information on insolvency proceedings and the usual procedures thereof.

At present, with the aid of hitherto known information, it is possible to ascertain, firstly, losses which creditor subjects face in insolvency proceedings; and secondly, it is at least possible to estimate certain expenses connected with insolvency proceedings.

According to hitherto completed surveys, the situation is such that secured creditors usually gain between 30 – 40 % of the volume from their receivables, non-secured creditors around 3 – 4 %. As regards receivables beyond property and receivables placed on a par with receivables beyond property, their satisfaction is around 60 – 70 % of the volume.

Nevertheless, given sufficient data and when surveying a significant part of the entire number of insolvency proceedings, it is possible to design mechanisms and approaches through which it will be possible to estimate realistically the size of the loss from insolvency proceedings and to decide accordingly as to transaction costs and other financial steps.

The article has been processed as one of the outputs of the research project TD020190 registered at TAČR.