The Financial Crisis of 2009 - Have Reorganization Proceedings in Emerging Markets Gone Bankrupt? Israel as a Case Study

The financial crisis of 2009 affected markets all over the world, presenting an unprecedented challenge for international regulators. In emerging markets, firms began raising significant amounts of debt through corporate bonds only in recent years. When such markets crashed, and firms could no longer pay bondholders, regulators were forced to adopt innovative policies to cope with the problem. This paper explores the possible regulatory responses to the crisis, by focusing on the actions taken by regulators in Israel. The paper outlines the various mechanisms that have been employed and offered to combat the crisis and highlights their shortcomings. It then points to one mechanism that was designed specifically for such crises, yet was dramatically underused, namely, formal bankruptcy. The paper elaborates on the prime reasons for the unfortunate neglect of bankruptcy proceedings in this context and proposes certain revisions in reorganization law that can lead to more widespread use of formal bankruptcy for resolving the financial crisis in the best interest of all parties involved.