Administrative ban on bankruptcy

April 22, 2016 18:05

Regardless of the economic situation in 2011, the number of bankruptcy cases in comparison with 2010 has decreased by about 10%.

The Head of the Highest Economic Court Mr. Kamenkov explained that economic courts started requiring a written confirmation from the local governments (i.e. owners of enterprises) that no other measures would improve the business. In other words, local administrations became liable for allowing bankruptcy.

Nevertheless, the local administrations have been previously responsible for prevention of bankruptcies anyway. Firstly, bankruptcies have negative impact on the balance sheet statistics. Secondly, the loss-making enterprises were often used to receive subsidies, preferences, write-offs, etc. Thirdly, the introduction of an institution of crisis managers of insolvent enterprises opened a number of opportunities for the growth of “administrative rent”.

If a company was steadily untenable to provide with additional administrative rent, local governments and agencies attached it to a consistently profitable business. As a result, the profitability of the latter lowered while the loss-making business remained unprofitable. That is the way the costs are redistributed between economic agents in Belarus, which is yet an additional obstacle to privatization.

Local governments’ control over prevention of bankruptcies of private enterprises is significantly weaker but not non-existent: officials follow their statistical reports. However, when it concerns private enterprises, it is much easier for creditors to file a suit to the court and the vast majority of decisions on bankruptcy concern private enterprises.

According to the Highest Economic Court of Belarus, on February 1, 2012, there were 1,517 cases of bankruptcy (in January 2011 - 1,412), of which 96.7% (1.467) cases related to the bankruptcy of private enterprises (in January 2011 - 95.3% or 1.347). Only fifty cases involved state-owned enterprises and companies with state-owned shares in the authorized capital (in January 2011 - 65).