Financial Distress and Bank Restructuring of Small to Medium Size UK Companies

47 Pages Posted: 24 Jul 2003

See all articles by Julian R. Franks

Julian R. Franks

London Business School - Institute of Finance and Accounting; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Oren Sussman

European Corporate Governance Institute (ECGI)

Date Written: May 2003

Abstract

We use a unique data set to analyse how UK banks deal with small to medium size distressed firms both inside and outside bankruptcy. The approach to bankruptcy is contract-based, with lenders and borrowers relying on procedures written into the debt contract, and where the courts are largely uninvolved. We find that firms in our sample have highly concentrated debt structures and liquidation rights. As a result, the rescue process is largely free of coordination failures and creditors' runs. We find that the principal lender, 'the bank', makes few concessions to the borrower and that there is a virtual absence of debt forgiveness. Finally, the bank relies heavily on the highly collateralized value of its loan in making the decision to place the distressed firm in bankruptcy.

Keywords: Bankruptcy, bank lending, collateral, liquidation rights

JEL Classification: G10, G20

Suggested Citation

Franks, Julian R. and Sussman, Oren, Financial Distress and Bank Restructuring of Small to Medium Size UK Companies (May 2003). Available at SSRN: https://ssrn.com/abstract=428042

Julian R. Franks (Contact Author)

London Business School - Institute of Finance and Accounting ( email )

Institute of Finance and Accounting
Sussex Place - Regent's Park
London NW1 4SA
United Kingdom
+44 20 7262 5050 x3449 (Phone)
+44 20 7724 3317 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: https://ecgi.global/

Oren Sussman

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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