Designing insolvency systems for small farm enterprises: Beyond micro and small enterprise insolvency frameworks

Abstract

This article argues that small, owner‐operated farms represent a distinct category of small enterprise that warrants specialized treatment under insolvency law. These small farms represent a very large proportion of the micro and small enterprises (MSEs) in many emerging economies. Yet recent international efforts to develop simplified insolvency frameworks for MSEs do not adequately account for the distinctive characteristics of small farm enterprises, including seasonal production cycles, the integration of household and productive assets, the multifunctional nature of farmland, and the broader implications of farm distress for rural communities and food security. This article demonstrates that these characteristics require both refinement of existing MSE insolvency principles and the development of supplementary principles for designing agricultural insolvency systems tailored to the realities of smallholder farming. Drawing on comparative experience of jurisdictions which introduced small farm insolvency regimes while their economies were developing, together with the World Bank's Principles for Effective Insolvency and Creditor/Debtor Regimes and the UNCITRAL Legislative Guide on Insolvency Law for MSEs, the article proposes a framework for designing insolvency systems capable of addressing the unique challenges facing small farm enterprises in developing economies. It concludes that effective farm insolvency reform requires more than procedural innovation. It requires an integrated institutional ecosystem in which insolvency law, mediation, taxation, institutional capacity, agricultural policy, and financial infrastructure work together to support the rehabilitation of viable farming enterprises.