Banque de France finds court mergers improve insolvency decisions
The Banque de France finds that the 2009 reform, which merged commercial courts in France, improved the quality of insolvency decisions for companies with fewer than 10 employees. This occurred by reducing errors of judgment, contrary to initial fears.
Mergers target judgment errors
The 2009 reform of France's judicial map significantly reduced the number of commercial courts from 185 to 134, aiming to modernize the system and improve decision quality.
This consolidation, however, initially raised concerns about geographical access for litigants and potential overloading of absorbing courts.
French commercial courts are unique, composed of non-professional judges elected from business leaders, fostering local understanding but also risking decision-making biases.
These biases include 'continuation bias' – attempting to save non-viable businesses – and 'liquidation bias' – liquidating potentially viable ones.
A Banque de France study by Epaulard and Zapha (2025) specifically assessed the reform's impact on these judgment errors in insolvency cases.
The research found that the mergers successfully reduced the continuation bias without increasing the liquidation bias, leading to more selective and ultimately more successful restructurings.
Best practices spread to small firms
The reform significantly reduced the probability of companies in absorbed jurisdictions being placed in receivership by 6 percentage points, and the likelihood of obtaining a restructuring plan by 2 percentage points.
Importantly, the survival rate of restructured companies improved, indicating enhanced decision quality.
This positive outcome was predominantly observed for businesses with fewer than ten employees, accounting for over 90 percent of the studied bankruptcies.
Absorbing courts managed increased workloads without deteriorating procedure length or decision quality.
The study emphasizes that this success is due to the spread of efficient practices from the absorbing courts, rather than mere consolidation, offering valuable lessons for judicial rationalisation policies.
A model for judicial efficiency
This study provides compelling empirical evidence that judicial consolidation, when executed by leveraging best practices, can significantly enhance the quality of insolvency decisions.
It effectively counters initial fears of reduced access or overloaded courts, demonstrating tangible improvements for small businesses.
The findings offer a valuable blueprint for public authorities considering similar reforms aimed at boosting the efficiency and effectiveness of their judicial systems.