PREPACKS AND THE ADVERSE SELECTION PROBLEM

The article presents the first detailed econometric analysis of pre-packaged reorganization plans in Serbia. Pre-pack offers tremendous incentives for debtors in financial difficulties making it their preferred restructuring alternative. Using the sample of 97 cases, we show that pre-pack fails to filter out inefficient firms as we find no evidence to suggest that the debtors who file pre-packaged plans are in significantly better financial position than those whose plans are submitted after the opening of bankruptcy proceedings. Filtering failure is a result of the poor implementation of the law and creditors’ passivity. We examine regulatory and market approaches for solving the problem of adverse selection of debtors filing a pre-packaged bankruptcy.