Corporate Debt Restructuring-A Proposal for East Asia : Auctions Speak Louder than Words

Auctions may be an appropriate way to reorganize the liabilities of some overindebted East Asian firms - those that are generally well run, for which there is merit in keeping the existing owners in place, but for which conventional bankruptcy procedures are proving too slow. This Note proposes an auction scheme dubbed Accord - for Auction-based Creditor Ordering by Reducing Debts. Firms pay creditors in sequence as their operating cash flows permit rather than on a promised schedule. Creditors bid for position in the queue by the proportion of debt they forgive, choosing between smaller or more deferred repayments. The outcome: a firm with serviceable debt, controlled by existing owners with an incentive to operate it efficiently.