Strengthening Insolvency Systems in Asia and the Pacific

Scott Atkins
President, INSOL International; Global Co-Head of Restructuring, Norton Rose Fulbright

Mr. Scott Atkins described the effort to introduce insolvency law reform in Australia. However, certain initiatives, such as innovations regarding cross-class cram down and moratorium, have been deferred for now. If these initiatives are passed, they could be an important addition to the country's overall toolkit.

Anthony Casey
Deputy Dean and Donald Ephraim Professor of Law and Economics, The University of Chicago Law School

Prof. Anthony Casey discussed the benefits of hybrid procedures, which enable out-of-court restructurings to commence and receive court approval. He also addressed pre-packaged bankruptcies in the United States, noting their suitability for financial restructuring before filing and without court intervention in business operations.

Mahesh Uttamchandani
Manager for Digital Development in East Asia and the Pacific, World Bank

Mr. Mahesh Uttamchandani emphasized that there is no one-size-fits-all approach to designing formal insolvency proceedings and choosing between single- or multi-entry systems. Instead, he highlighted the significance of the quality of insolvency administrators and the judges presiding over insolvency cases.

Jared Ellias
Professor of Law, Harvard Law School

Prof. Jared Ellias described the evolution of corporate bankruptcy over the years and provided insights into the debtor-in-possession (DIP) framework. He highlighted the lack of clarity regarding the DIP's obligation to serve either creditors or shareholders.

Kotaro Fuji
Counsel, Nishimura & Asahi

Mr. Kotaro Fuji discussed two types of formal insolvency proceedings for restructuring companies in Japan: civil rehabilitation proceedings and corporate reorganization proceedings. According to Mr. Fuji, civil rehabilitation has become increasingly popular in Japan due to its efficient DIP aspect in quickly restructuring a debtor company's business and preserving its going concern value.

Ravi Mital
Chairperson, Insolvency and Bankruptcy Board of India (IBBI)

Mr. Ravi Mital spoke of India's preference for the self-regulatory model. He also outlined the necessary qualifications, appointment process and remuneration of IPs.

Dr. Catherine Robinson
Senior Lecturer, Faculty of Law, University of Technology Sydney, Australia

Dr. Catherine Robinson noted that empirical research indicates inconsistencies among Australia's industry bodies with respect to regulatory approaches to IPs. While one large industry body may oppose regulation, another may strongly support it. Dr. Robinson stated that while the liquidator's/trustee's work involves the reality of a lack of funds to pay, the profession's ultimate objective is not solely to realize a return to creditors. Instead, practitioners value their service's role to the community and prioritize vulnerable debtors.

David Chew
Partner, DHC Capital

Mr. David Chew described four (4) primary valuation methods used in insolvency proceedings: discounted cash flow (DCF), relative valuation, asset-based valuation and liquidation value. He explained the principal features of each method. According to Mr. Chew, valuation helps determine several issues, such as (i) which creditors are positioned to be the key stakeholders in restructuring, (ii) the theoretical price of the business, or (iii) the theoretical value of the assets.

Elizabeth McColm
Partner, Paul, Weiss, Rifkind, Wharton & Garrison LLP

Ms. Elizabeth McColm stressed the importance of valuation and transparency in insolvency proceedings. She believes that all parties should have equal access to information, including valuations, and the ability to test them in court through cross-examination.

Jared Ellias
Professor of Law, Harvard Law School

Prof. Jared Ellias identified several incentives that could lead directors to make suboptimal decisions. These include the incentive to gamble, delay restructuring, facilitate tunneling and act on their own self-interest once a company files for bankruptcy. According to Prof. Ellias, the challenge is determining whether a director's decision is motivated by a bad strategy or if they are simply making what they believe is the right decision for the firm.

Aurelio Gurrea-Martinez
Associate Professor of Law and Head of the Singapore Global Restructuring Initiative, Singapore Management University

Prof. Gurrea-Martinez discussed the approaches of various jurisdictions regarding directors' duties during financial distress. Some jurisdictions allow directors to act in the best interest of the corporation, while others limit a company's ability to incur debts if the directors believe they cannot be paid in full. In some jurisdictions, the most stringent approach prohibits a company from obtaining additional loans when it experiences financial distress.

Sumant Batra
President, Insolvency Law Academy

Mr. Sumant Batra highlighted the progress made on the IBC in India. However, he noted that there has been little progress on the issue of avoidance action, resulting in a backlog of applications in courts. Fortunately, the Indian market is mature and understands the importance of avoidance transactions. Mr. Batra is optimistic that India will pay more attention to pending avoidance transactions and unlock significant amounts of money locked in those proceedings.

Charles D. Booth
Michael J. Marks Distinguished Professor in Business Law; Director, Institute of Asian-Pacific Business Law (IAPBL), William S. Richardson School of Law, University of Hawai‘i at Manoa

Prof. Charles D. Booth discussed the challenges of designing avoidance action laws in developing economies. He noted that the complexity of the issue makes it difficult to implement in economies that have not previously considered avoidance actions. Additionally, policymakers often do not prioritize avoidance powers when working on law reform.

Brook Gotberg
Francis R. Kirkham Professor of Law, Brigham Young University

Prof. Brook Gotberg discussed the order of avoidance actions from most to least intuitive. According to her, the most intuitive clawback is an intentionally fraudulent conveyance where the debtor gives away money to defraud creditors or where an insider transfers money away from the company. The next level of intuitive clawback is the constructive fraudulent transfer, followed by setoff preferences and insider preference. Lastly, the least intuitive transfer is the general preference law.

Joshua Macey
Assistant Professor of Law, The University of Chicago Law School

Prof. Joshua Macey made three (3) main points about avoidance law. Firstly, there are actual fraudulent transfers where property is transferred with the intent to defraud, hinder or delay creditors. Secondly, constructive fraud occurs when the debtor receives less than equivalent value in exchange for the transfer, and was either insolvent at the time, or rendered insolvent by the transfer, or left with unreasonably small capital. Third, there are voidable preferences where a trustee can recover a payment made within 90 days of the filing date if the transfer was made for the benefit of a creditor on account of an antecedent debt incurred when the debtor was insolvent.

Charles D. Booth
Michael J. Marks Distinguished Professor in Business Law; Director, Institute of Asian-Pacific Business Law (IAPBL), William S. Richardson School of Law, University of Hawai‘i at Manoa

Prof. Charles D. Booth shared his experience in law reform in the Asia Pacific region in the context of insolvency law reform for MSEs. He highlighted the issue of bankruptcy stigma but noted that effective bankruptcy laws could help overcome it. Prof. Booth also stressed the importance of training insolvency administrators and judges to assist financially distressed MSEs.

Jason Harris
Professor of Corporate Law, University of Sydney Law School

Prof. Jason Harris emphasized the importance of policymakers considering economic reality and the personal circumstances of MSE owner-managers. He suggested that MSEs should seek advice as early as possible, particularly when the company is in the early stages of decline. As an example, he cited Australia, where small businesses frequently avoid the insolvency system altogether due to concerns about losing their family homes or not having enough funds to hire insolvency practitioners.

Jared Ellias
Professor of Law, Harvard Law School

Prof. Jared Ellias discussed that DIP financing used to involve large loans that were typically payable in two to three years. Nowadays, they often come with strict covenants that require reorganization within a certain timeframe, often ranging from 45 days to nine months. Prof. Ellias believes that while DIP loans truly serve as rescue financing in some cases, they are now often used for other purposes, such as securing control.

Aurelio Gurrea-Martinez
Associate Professor of Law and Head of the Singapore Global Restructuring Initiative, Singapore Management University

Prof. Aurelio Gurrea-Martinez discussed the types of priority that can be provided to DIP lenders. He also discussed the advantages and disadvantages of allowing creditors to veto new financing obtained by companies in insolvency proceedings.

Edith Hotchkiss
Professor of Finance, Carroll School of Management, Boston College

Prof. Edith Hotchkiss discussed the inherent issues that insolvency systems often face, which are compounded when dealing with corporate group structures. These issues include bad faith asset shifting within the group and contagion issues, such as supply chain problems or loss of control over assets in other locations.

Timothy Graulich
Partner, Davis Polk & Wardwell LLP

Mr. Timothy Graulich discussed how failing to consider the corporate group dimension could lead to more liquidations and complicated in-court restructurings. He also explained why corporate groups often choose to file for insolvency proceedings in courts in the United States.

Joshua Macey
Assistant Professor of Law, The University of Chicago Law School

Prof. Joshua Macey discussed the benefits of using ex ante voting rules to determine the selection of the insolvency forum ex post. He explained that there are compelling reasons for selecting a specific jurisdiction for filing, and these reasons may also apply to cross-border insolvency. Furthermore, cross-border cases present unique challenges.

Dan T. Moss
Partner, Jones Day

Mr. Dan T. Moss explained that foreign companies prefer to file for bankruptcy in the United States because of the country's robust legal system and established precedent on the issues. However, this trend has expanded beyond the United States due to the increasingly global and competitive market.