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.
History
School
Business and Economics
Department
Business
Pages
109309 bytes
Citation
POND, K., 2002. Creditor strategy in individual insolvency. Managerial Finance, 28(6), pp.46-60