When Liquidation is NOT an Option: A Global Study on the Treatment of Local Public Entities in Distress

The treatment of local public entities in distress is a largely domestic, even parochial area of law. The rules in this area are largely unaffected by the influence of principles developed in other areas of law, including bankruptcy and restructuring law. In many of the countries considered in this study, when local public entities become insolvent, politics plays a major role in determining how to address the financial, societal and legal issues arising from these cases.
The rich material the national reports have produced allowed us to provide
recommendations for a harmonised and principled treatment of these entities. The key priority of the recommendations proposed in this study is to ensure the continuity of essential public services without necessarily deviating from the established insolvency principles of collectivity and equality of treatment among creditors. However, the executive summary and the preambular chapter include a series of more tailored recommendations that national lawmakers should consider to reform or establish a national framework for dealing with local entities in distress and to be more prepared when similar events will occur in the future.