Creditor strategy in individual insolvency
journal contributionposted on 05.04.2006 by Keith Pond
Any type of content formally published in an academic journal, usually following a peer-review process.
Under UK Insolvency law creditors face a strategic choice when dealing with some insolvent individual debtors. Since 1986 Individual Voluntary Arrangements (IVAs) have been available to return better recoveries than bankruptcy but returns are subject to a greater degree of uncertainty. In this paper Game Theory is used to model the strategic choice and the proposition that creditors face. The game played out is an indefinitely repeating non-co-operative game with player learning and risk minimisation supported by empirical evidence from studies of IVAs. The paper shows that creditors have the potential to select revenue maximising strategies based on simple review of the IVA proposal their knowledge of the debtor and the perceived probity of the insolvency profession. Consistent use of successful strategies could both increase the acceptance and incidence of IVAs and improve the likelihood of recovery.
- Business and Economics