Business Removing

86 DOING BUSINESS IN 2005
Enforcing contracts
Indicators on enforcing contracts measure the efficiency of
the judicial (or administrative) system in the collection of
overdue debt. The data are built following the step-by-step
evolution of a payment dispute either before local courts or
through an administrative process, if such a process is available
and preferred by creditors. The data are collected
through research of the codes of civil procedures and other
court regulations, as well as surveys to local litigation lawyers.
At least 2 lawyers participate in each country and in a quarter
of the countries, judges complete the survey as well. To ensure
comparability, survey respondents are provided with significant
detail, including the amount of the claim, the location
and main characteristics of the litigants, the presence of city
regulations, the nature of the remedy requested by the plaintiff,
the merit of the plaintiff’s and the defendant’s claims and
the social implications of the judicial outcomes.
Assumptions about the case
To make the case comparable across countries, 10 assumptions
are employed:
• The debt value equals 200% of the country’s income per
capita.
• The plaintiff has fully complied with the contract (the
plaintiff is 100% right).
• The case presents a lawful transaction between businesses
residing in the country’s most populous city.
• The bank refuses payment for lack of funds in the borrower’s
account.
• The plaintiff attempts to recover the debt by filing
a law suit or going through an administrative process, if
such a process is available and preferred by creditors.
• The debtor attempts to delay service of process but it is finally
accomplished.
• The debtor opposes the complaint (default judgment is
not an option).
• The judge decides every motion for the plaintiff.
• The plaintiff attempts to introduce documentary evidence
and to call one witness. The debtor attempts to call one
witness. Neither party presents objections.
• The judgment is in favor of the plaintiff.
Procedures measure
The indicator measures the number of procedures mandated
by law or court regulation that demand interaction between
the parties or between them and the judge (or administrator)
or court officer.
Cost measure
The indicator measures the official cost of going through
court procedures, including court costs and attorney fees
where the use of attorneys is mandatory or common, or the
costs of an administrative debt recovery procedure, expressed
as a percentage of the debt value.
Time measure
The indicator measures the time of dispute resolution—in
calendar days—counted from the moment the plaintiff files
the lawsuit in court until settlement or payment. This includes
both the days where actions take place and waiting periods
between actions. The respondents make separate estimates
of the average duration of different stages of the
dispute resolution: for the completion of service of process
(time to notify the defendant), the issuance of judgment
(time for the trial or administrative process) and the moment
of payment or repossession (time for enforcement).
The methodology is originally developed in Djankov and others
(2003) and adopted with minor changes here.
Closing a business
Doing Business studies the time and cost of insolvency proceedings
involving domestic entities. The data are derived
from survey responses by local law firms, all members of the
International Bar Association. Answers were provided by a
senior partner at each firm, in cooperation with one or two
junior associates.
Assumptions about the business
To make the business comparable across countries, 10 assumptions
are employed. The business:
• Is a limited liability company.
• Operates in the country’s most populous city.
• Is 100% domestically owned, of which 51% is owned by
its founder, who is also the chairman of the supervisory
board (aside from the founder, there is no other shareholder
who has above 1% of shares).
• Has downtown real estate as its major asset, on which it
runs a hotel.
• Has a professional general manager.
• Has average annual revenue of 1,000 times income per
capita over the last 3 years.
• Has 201 employees and 50 suppliers, each of whom is
owed money for the last delivery.
• Borrowed from a domestic bank 5 years ago (the loan has
10 years to full repayment) and bought real estate (the
hotel building), using it as a security for the bank loan.
• Has observed the payment schedule and all other conditions
of the loan up to now.
• Has a mortgage with the value of the mortgage principal
being exactly equal to the market value of the hotel.