There is paucity of information available to the public that addresses the extent of Ecuador's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank. A 2004 report by the International Monetary Fund (IMF) recommended that Ecuador enact reform legislation that would strengthen its insolvency and creditor rights regime, but as of the publication of the IMF's 2005 Article IV Consultations report for Ecuador, no such legal reform had yet been enacted. A 2004 World Bank report authored by Johnson and Alonso called the existing legislation "obsolete" and "highly inefficient," and noted that there was little public confidence in the insolvency regime. The authors added that the existing institutional structure is inadequately staffed and trained in the intricacies of insolvency work. The 2005 Article IV Consultations report did note that a draft bankruptcy and creditors' rights bill was expected to be presented to Congress in 2006. Later that year a new Law on Reorganization Proceedings was passed; however it is unclear whether this is a final version of the draft law cited in the 2005 IMF report.

General Overview

There is a paucity of information available to the public regarding Ecuador's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank. Among the few sources dealing with the subject is a 2004 Financial Stability Assessment Program report issued by the International Monetary Fund (IMF) which recommended that Ecuador strengthen its insolvency and creditor rights regime. However, the IMF's 2005 Article IV Consultations report disclosed that such reform had yet to be enacted into law. The report noted that such legislation was expected to be submitted to the Ecuadorian Congress in 2006. It is the case that, in 2006, a new Law on Reorganization Proceedings was enacted, but whether or not this is the same legislation alluded to in the 2005 IMF report is unclear.

According to Gordon W. Johnson and Daniel Alonso, writing for the World Bank in 2004, "insolvency legislation in Ecuador tends to be highly fragmented, incomplete and contradictory" (p. 22). Ecuador's insolvency legislation comprises several laws. At the heart of the insolvency regime is the 1938 Code of Civil Proceedings. In 1997, Ecuador also passed the Law on Reorganization Proceedings, and in 2000 the Economic Transformation Law took effect. According to the authors, there are also provisions in the Commercial Code relevant to insolvency, specifically the provision allowing merchants to suspend payments to creditors. This provision, however, is unused, "because of its obsolete structure" (p. 22) the authors state. The Commercial Code does not permit so-called "haircuts" or reorganizations, and the prerequisite for eligibility to suspend payments is unrealistic, requiring that the debtor's total liabilities be less than his or her assets. The liquidation procedure laid out in the Code of Civil Proceedings is also rarely used, and the authors characterize it as "highly inefficient" (p. 22). The Law on Reorganization Proceedings is also criticized. The authors state that this Law (since superseded by the 2006 Law of the same name), was used only rarely. Johnson and Alonso find that Ecuador lacks appropriate legislation to permit voluntary workouts, and there is no incentive to pursue informal restructuring arrangements. Johnson and Alonso describe the Superintendency of Banks as the administrative body that possesses certain judicial functions as a result of the provisions stated in the 1997 Law on Reorganization Proceedings. This Law was considered to be of questionable constitutionality and did not enjoy favorable public opinion, particularly because of its assignment of a judicial role to the Superintendency of Banks, which was believed to be institutionally inappropriate to assume such a responsibility. Its staff was considered inadequately trained and insufficiently experienced.

According to Primo Diaz Garaycoa, writing for the World Bank in 2003, there are no special courts or judges for insolvency proceedings in Ecuador. The judicial proceedings for insolvencies are managed by civil judges. The Code of Civil Proceedings regulates the insolvency process in the country. The author also notes that the draft Law on Reorganization Proceedings sought to regulate the relationship between debtors and creditors and consequently preserve the company. Garaycoa also notes that the Law on Reorganization Proceedings, along with the regulation to reschedule liabilities laid out in the Law on Economic Transformation, anticipates the "cessation of payments" and the consequent bankruptcy procedures. Thus, the reorganization process seeks an agreement between debtor and creditors called "concordato," which can be requested by the debtor or any of the creditors. According to the author, this was the process prevailing at the time of the publication.. The Garaycoa report also states that the liquidation process in Ecuador is regulated by the Companies Law and is supervised by the Superintendency of Companies. The Civil Code foresees the means under which the assets of a liquidated company are realized and the liabilities ceased.

The World Bank's 2008 "Doing Business in Ecuador" snapshot evaluates three aspects of the process for closing a business: the time in years required to complete the procedure; the cost of the proceedings, expressed as a percentage of the debtor estate; and the rate of recovery by creditors, expressed in terms of cents on the dollar. In Ecuador, the average time required to close a business is 5.3 years. This compares poorly to the regional average, which is 3.2 years, and is significantly less favorable than the average experienced by member states of the Organization for Economic Co-operation and Development (OECD), which is 1.3 years. The cost of closing a business in Ecuador is 18% of the debtor estate, on average. Again, this is less favorable than the regional average of 16.4%, and well over twice the OECD's average of 1.3%. Finally, the average recovery rate in Ecuador is 16.5 cents on the dollar. For the region, the average is 25.9 cents, and for the OECD member states, the average is 74.1 cents.