17 enterprise conciliation in 1993 that allowed enterprises<sup>toenter intotime-bound, out-of-court,</sup> bank-led conciliation agreements aimed at restructuring<sup>and/or assetresolution. Atthesame</sup> time, the governnent required banks to initiate<sup>bankruptcyorliquidationproceduresifthey</sup> failed to reach agreemnent with their nonperforming<sup>enterprise borrowers(World Bank1993).</sup> Out-of-court programs in Hungary and Thailand<sup>appearedtohavebeenlesssuccessful.</sup> Hungary tried to circumvent an overburdened court<sup>systemwithaconciliationprogrambutit</sup> failed due to a lack of transparent rules and penalties<sup>fornon-compliance.</sup> This resulted in persistent interventions by competing government<sup>ministries whichcompletely underminedthe</sup> out-of-court process (Kopanyi 2000a; World Bank<sup>1997a).Aweakstructure andinadequate</sup> enforcement of the out-of-court framework adopted<sup>inThailandhavenotfacilitated</sup> restructuring. At the end of 1999, thirteen percent<sup>oftherestructuredcases revertedtonon-</sup> performing status in just a few months (Claessens,<sup>DjankovandKlingebiel1999b).Thailand</sup> also established a separate bankruptcy court that was<sup>intendedtoincreasetheefficiencyof</sup> judicial procedures in bankruptcy cases to address the<sup>mainweaknessinitsformalbankruptcy</sup> regime in early 1999. Following the establishment of<sup>thecourt,thenumberof bankruptciesin</sup> Thailand still remained low, however, and fraught with<sup>difficulties(Foley 2000).</sup>

**Table 6. Features of Out-of-court Corporate**<sup>**Restructuring**</sup>

||Allormost banks<br>signedontoaccord<br>|Accord providesfor<br>formalarbitrationwith<br>deadlines<br>|Accordimposes<br>penaltiesfor<br>nonconpliance<br>|
|---|---|---|---|
|Argentina<br>|No<br>|No<br>|No|
|Chile<br>|No<br>|Yes<br>|n.a.<br>|
|Hungary<br>|Yes<br>|No<br>|No<br>|
|Japan<br>|No<br>|No<br>|No<br>|
|.<br>Norway<br>|No<br>|No<br>|No<br>|
|Poland<br>|Yes<br>|Yes<br>|Yes<br>|
|Thailand|Yes|Yes|Yes|

_Note:_ In Chile, private agents were allowed to resolve<sup>bankruptciesby hiring specialized privateconsultingfirns.</sup> _Sources:_ Barandiaran and Luders 2000; Kopanyi<sup>2000a;WorldBank1997a; WorldBank1993;Claessens,DjankovandKlingebiel</sup> 1999b

**_d. Severance of ownership links._** As the fifth column of Table **_5_** suggests, in Chile, Hungary and Poland where direct ownership links were<sup>significant impedimentsto restructuring,</sup> the introduction of new regulations, public recapitalizations<sup>and foreignentryintothefinancial</sup> system effectively severed or at least significantly reduced<sup>ownershiplinks. Inthesecrisis</sup> countries the government used the crisis as an opportunity<sup>tochangeownership structuresand</sup> sever ownership links that can hamper corporate restructuring.<sup>Afterthecrisisemerged, Chile</sup> began to tighten limits on cross-ownership between<sup>financialinstitutionsandcorporationsbut</sup> more importantly, started to enforce them (Sheng 1996c).<sup>5</sup> Moreover, foreign entry into the banking system further severed ownership links between<sup>corporationsandbanks(WorldBank</sup> 1997c; 1999b). Recapitalization programs in Hungary<sup>effectivelynationalized banksandwiped</sup>

5 Banks were required to reduce loans to related companies<sup>tonomorethan</sup><sup>_5_percentof theirtotal portfolios.By</sup> the last year of the crisis, a new banking law attempted<sup>to eliminate the practiceof related lendingand definedmore</sup> precisely the concept of "client".