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AbstractPoland's 1993 Enterprise and Bank Restructuring Programme (EBRP) provided for the resolution of problem loans through bank‐led or court‐led workouts, liquidation, or loan sales. This paper examines the workings of three traditional exit processes ‐ court‐led conciliation, bankruptcy, and state enterprise liquidation. Neither bankruptcy nor court conciliation as currently designed gives creditors in Poland enough control over firsm in financial distress. Suggested improvements in design need to be complemented by strong economic policies that give banks and other creditors powerful incentives to use these debt collection mechanisms. The most problematic of the three exit routes is state enterprise liquidation, and although on paper designed for solvent firms, it is often used to get around bankruptcy and keep debtor management in control of assets for as long as possible. Now that the special bank conciliation process has expired as an option, Poland should shift its energies to improving traditional, broadly applicable exit and workout processes.

AbstractPoland's 1993 Enterprise and Bank Restructuring Programme (EBRP) tried to force state‐owned commercial banks to build institutional capacity and resolve their problem loans. The outcome of its innovative bank‐led workout ('conciliation') process, documented in this study of 62 firms, is decidedly mixed. The EBRP forced banks to confront their problems, helped them to build instituional capacity in their workout units, and furthered the difficult task of weeding out and closing clearly unviable firms. Yet it had limited power to promote needed restructuring or privatization in firms. The conciliation agreements were relatively unsophisticated and include few tangible requirements for operational or management change. The first two years of implementation saw a slowdown (over earlier years) in the rate of layoffs, a decline in average operating profitablility, and very little real privatization. The main impact of conciliation appears to have been to reduce debt service and thereby give firms 'breathing room'.

The rebirth of competition and the extensive "exit" that has resulted are among the most important developments in Central Europe since the demise of Communism. This text examines why, how, and to what extent enterprises have reduced their size or left the market altogether during the first years of the transition from socialism to capitalism in the Czech Republic, Hungary and Poland