Why reorganization of firms fails: evidence from Estonia. Summary: Saneerimismenetluse ebaõnnestumise põhjused Eestis

Abstract

Although most countries have firm reorganization option in legislation (either as a separate law or part of insolvency code), the practice of successful reorganizations has remained modest. Reorganization law was introduced in Estonia in late 2008, but only a few firms have been successfully reorganized since. Derived from previous the article studies, what are the reasons for firm reorganization failure. From legal viewpoint, main causes are found to be that firms under reorganization do not submit reorganization plans to court and the preconditions for reorganization lapse. The financial ratios for successful and unsuccessful reorganizations are not significantly different according to independent samples median test. Unsuccessfully reorganized firms perform worse than successful ones in the year before reorganization year, but the opposite phenomenon occurs two and three years before reorganization year.