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Issue № 74. June 2019

Mergers and Acquisitions of Distressed Companies as a Mechanism of Business Recovery and Bankruptcy Prevention

Alla Z. Bobyleva, Olga A. Lvova

Alla Z. Bobyleva — DSc (Economics), Professor, Lomonosov Moscow State University, Moscow, Russian Federation.
E-mail: bobyleva@spa.msu.ru

Olga A. Lvova — PhD, Associate Professor, Lomonosov Moscow State University, Moscow, Russian Federation.
E-mail: lvova@spa.msu.ru

The paper analyzes the mechanism of business recovery and bankruptcy prevention by means of mergers and acquisitions of distressed companies applied in Western countries, and the possibilities of its adaptation and development in Russia.

The relevance of the research topic is due to the imperfection of a modern Russian bankruptcy institution, which does not solve its strategic tasks to restore the indebted business, to satisfy the creditors' claims within liquidation procedures. It is also necessary to look for opportunities of the distressed companies’ rehabilitation when risk of insolvency and bankruptcy arises.

During the study, general scientific methods were applied, including analysis and synthesis, logical and comparative analysis, the method of grouping and generalization, expert analysis, and methods of scientific classification.

Implementation of the authors’ approach to defining the term “distressed companies”, identification of features of the mergers and acquisitions (M&A) market with participation of distressed companies, an analytical review of the international market current state and the specifics of the Russian M&A market with distressed businesses, allowed to formulate the following conclusions: conditions for preventing bankruptcy by merging unsuccessful companies with stronger ones have been created and continue to develop in the USA and EU countries. This is due to the fact that bankruptcy prevention, selling the distressed company as (even weakened) going concern, is an advantage in terms of social and economic consequences; the Russian M&A market at the stage of business’ bankruptcy prevention and within insolvency court proceedings has not yet completely formed: there is no practice to prevent bankruptcy under the control of the court; within insolvency proceedings, the debtors’ assets are usually sold in pieces while the actual information on possible weakened “target companies” is not presented in a systematic manner.

Specific proposals for institutional support for such M&A in Russia are as follows: to codify in the legal acts the completence of distressed companies for which M&A transactions are possible under the control of the court (the bankruptcy prevention stage); to develop the rules for such transactions; to stimulate the sale of the business as going concern (including the whole asset complex), and not of the property in pieces; to create conditions for the functioning of companies-developers specializing in transactions with distressed companies; to establish a presentation of the systematized information about potential target companies to provide the market with relevant information on the regular basis.

Keywords

Bankruptcy prevention, business recovery, distressed companies, distressed assets, business insolvency, mergers and acquisitions of distressed companies, liquidation and rehabilitation insolvency procedures.

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