Contents at a glance... Editor’s Note Highlight of this Issue International Asset Tracing Case Decisions • USA Supreme Court Allows Attorney's Fees for Litigating Bankruptcy Issues Legislation • Australia (i) Pooling – How the Proposed Amendments are Intended to Operate (Part 1) (ii) Pooling – Overview of the Reforms (Part 2) Articles • Malaysia Islamic Banking: The New Battleground in Malaysia • United Kingdom Duplicate Officeholders – Too Many Cooks Spoil the Broth Publications • Germany Insolvency and Restructuring in Germany Yearbook 2007 News • INSOL International New York Seminar – 21st June 2007 • New INSOL Executive Committee

The recent INSOL conference in Cape Town was an important event, not only because of the networking opportunity it offered to participants, but because it demonstrated the unstoppable globalisation of insolvency practice and regulation.

In fact, as that process gathers speed, the networking opportunities offered by INSOL conferences themselves become increasingly important. Ten or even five years ago, the major purpose of meeting practitioners from around the world was to build up contacts who could be called upon in case one day a domestic insolvency happened to involve an asset in a remote location on the other side of the world. All that is changing rapidly. Some may point to the ongoing process of international adoption of UNCITRAL as evidence of the globalisation of our industry. I agree that UNCITRAL is evidence of change, but the change itself is something deeper.

That's because the drivers in our industry are changing. Although it's still important, the old model – a bunch of domestic creditors (a bank, the revenue authorities, employees and trade creditors) coming together to impose insolvency administration upon a company – is steadily being overtaken by new players and drivers.

While it is now a commonplace that markets are awash with money, it is only in comparatively recent times that there have started to be some really serious interactions between that money and insolvency administration. Money, of course, is global, and the interaction between money and insolvency is becoming a global phenomenon. The tactics adopted by hedge funds or bondholders in the USA today is likely to be coming to a distressed company near you, no matter where in the world you happen to be practising.

That's why INSOL conferences are so important. Once upon a time, there was only mild academic interest in topics such as “Credit derivatives in Iceland and Brazil – a comparative study”. Things are very different now: an INSOL conference offers the chance to find out about developments that are going to be of practical importance and – just as importantly – to meet and exchange experiences.

The result is a better informed profession, not only in terms of technical knowledge, but also in terms of a deeper understanding of the changing factors underlying insolvency practice. This is a process in which everyone has a part to play. Indeed, one of INSOL’s strengths is its ability to bring together practitioners, judiciary and academics in a forum which, as it the nature of the profession, is firmly focussed on practical outcomes.

David Cowling
Partner, Litigation & Dispute Resolution
Clayton Utz

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International Asset Tracing

International asset tracing is sometimes compared to a game of chess. You need to have a strategy (game plan); you need to think at least three or four moves ahead; you need to have a co-ordinated approach. In addition to these components, success also relies on team work with effective communication and leadership. This article discusses some of the core features that should be present in any international asset tracing campaign.

Fraud litigation is very rarely “domestic” and is often played out across several locations globally. The fraudster is usually several steps ahead in concealing the spoils of the fraud and the use of off shore companies or trusts to “layer” or hide beneficial ownership is now commonplace. The locating, securing and recovering of assets is therefore a challenge which requires detailed coordination and management.

The gathering, management and use of information is also a topic in itself. Information is key to any successful asset tracing exercise – it will be gathered continually and needs to be managed carefully.

The interaction between the criminal and civil process is also important. Asset tracing professionals should ideally understand both systems insofar as they can compliment each other. Broadly, whilst the victim of a fraud may have the right to initiate a criminal prosecution, it is not generally the role of the criminal authorities to recover assets. That said, a co-ordinated approach using both criminal and civil remedies can often work well, particularly where information can be more effectively obtained through the criminal route – and sometimes bank accounts and other assets frozen by the criminal authorities.

It is sometimes said that there is no such thing as difficult assets, just difficult jurisdictions! There is no doubt that the ability to locate, secure and recover assets varies greatly from jurisdiction to jurisdiction and whilst the general trend is towards more transparency and regulation (for example anti-money laundering), some jurisdictions lag well behind.

It is often said that the only way to tackle international commercial fraud is to take away the “gain” (i.e. to recover assets and to bring personal civil claims against those involved). However, whether a victim of such fraud has the ability (and appetite) to embark on what is often an expensive and lengthy process can depend on a number of factors. If the situation involves the public sector then there needs to be the political and cultural will to make those responsible account for their actions. In the private sector, commercial considerations are of course pivotal. In either case however experience shows that a well organised (and cohesive) campaign to locate, secure and recover assets across multiple jurisdictions can be highly successful.

For the full article please click here.

Andrew Witts
Head of the Commercial Fraud Group
Lawrence Graham LLP, London

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AMERICAS

USA

Supreme Court Allows Attorney’s Fees for Litigating Bankruptcy Issues

Travelers Casualty & Surety Co. of America v. Pacific Gas and Electric Company 549 U.S. – (2007)

In this case, the key issue to be decided by the Supreme Court was whether a litigant in a bankruptcy case involving federal bankruptcy law can collect attorney's fees that are granted by a contract or state law.

The Supreme Court unanimously reversed the decision of the Court of Appeal for the Ninth Circuit denying Travelers’ claim for attorney’s fees and held that the Court of Appeal erred in disallowing Travelers’ claim on the sole basis that the fees at issue were incurred during the bankruptcy case while litigating issues involving federal bankruptcy law.

The Supreme Court decided that the Bankruptcy Code did not expressly waive the contractual obligation to reimburse attorney fees even if incurred in federal litigation. Because the Bankruptcy Code “says nothing about unsecured claims for contractual attorney's fees incurred while litigating issues of bankruptcy law,” the Court could “presume that claims enforceable under applicable state law will be allowed in bankruptcy unless they are expressly disallowed.” Since none of the nine exemptions waiving contractual obligation to reimburse attorney fees set forth in 11 U.S.C. Section 502(b) applied to Travelers, nothing undermined the debtor's contractual or state-law obligation to pay fees.

The Court expressed no opinion as to whether other principles of bankruptcy law might provide an independent basis for disallowing an unsecured creditor’s claim for such attorney’s fees.

For a case note by Pepper Hamilton LLP, please see Bankruptcy Update, March 2007

For the opinion of the Court, please click here

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ASIA PACIFIC

Australia

Conducting a voluntary administration or liquidation of a corporate group can be costly as well as complex. Even where management information systems are good enough for accounts, analysis and reports to be conducted and prepared on a company-by company basis, this may not be needed to enable stakeholders to make sure their decisions.

The recently announced law reform package includes measures which should prove helpful to reduce complexity and cost. This article explains how the proposed changes will operate, and raise matters for practitioners to consider.

For the full article please see Australian Insolvency Journal, March 2007, P. 12

(ii) Pooling – Overview of the Reforms (Part 2)

The proposed new pooling powers will be a welcome addition to Australia's corporate insolvency laws. The need for clear and specific statutory pooling powers has been called for by numerous reports, judges and academic commentators. These new provisions should provide for more efficient insolvency administrations, and hopefully fewer court applications, reducing the costs that would otherwise be extended under the current provisions.

For the full article please see Australian Insolvency Journal, March 2007, P. 16

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ASIA PACIFIC

Malaysia

Islamic Banking: The New Battleground in Malaysia

Since Islamic financial services were introduced with the establishment of Bank Islam Malaysia in 1983, it has grown phenomenally and become an important and accepted form of banking and finance by the public. The acceptance of Islamic financial services as an alternative to conventional services is best reflected in the rising intermediation role and the rapid growth of assets and financing activity in the economy. Several local domestic banks that began offering Islamic banking products and services through its Islamic “window” less than a decade ago, are now known for their full-fledged Islamic banking services with significant asset portfolios.

Fundamentally, Malaysian Islamic banking and capital market instruments are generally structured under two main concepts – contract of exchange and contract of participation. The contract of exchange use concepts such as deferred sale, mark-up sale, leasing, sale and buy back, and progressive sale. The contract of participation use the concept of trust partnership and partnership.

It is hoped that the evolution towards operating like pure Islamic banks will help the country become a regional Islamic financial centre and these banking products and services also gain universal acceptance.

For the full article please see The Malaysian Accountant, February 2007, P. 3

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EUROPE, AFRICA & MIDDLE EAST

United Kingdom

Duplicate Officeholders – Too Many Cooks Spoil the Broth?

This article discusses the recent shenanigans in relation to insolvency officeholders’ remuneration in the MG Rover administrations.

In summary, the English court confirmed that practitioners' fears that the appointment of officeholders in main and secondary proceedings may result in the duplication of fees are real ones, but that a successful co-operation between the officeholders can produce benefits for creditors.

Some of the other related issues that are covered in this article include:

• English administrators of a German registered company cannot delegate their responsibilities (owed to the English court) to a German preliminary administrator appointed by the German court to the same company outside the regime of the Insolvency Regulation.
• The appointment of German preliminary administrator may open secondary proceedings under the EC Insolvency Regulation but this will depend on the facts of each individual case.
• Where the main proceedings are already opened there may be no need for a preliminary insolvency proceeding in a jurisdiction where the opening of secondary proceedings is contemplated.

For the full article please see Allen & Overy Bulletin, February 2007.

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EUROPE, AFRICA & MIDDLE EAST

Germany

Insolvency and Restructuring in Germany – Yearbook 2007

This year book has two parts. The first part covers several interesting articles on German insolvency laws and practice, as well as insolvency statistics. The second part contains a summary and outlook of the current reform projects in insolvency, and the EC Regulation on Insolvency and a supplement to the Regulation.

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INSOL International New York Seminar – 21st June 2007

INSOL is hosting a one-day educational programme focused on current international issues that are of interest to insolvency and turnaround professionals in this region.

For further details please contact: Tina McGorman – Email: tina@insol.ision.co.uk

Co hosted with:
American Bankruptcy Institute, Asociación Argentina de Estudios Sobre la Insolvencia, Association of Insolvency and Restructuring Advisors, Canadian Association of Insolvency and Restructuring Professionals, Canadian Bar Association (Bankruptcy and Insolvency Section, Commercial Law League of America (Bankruptcy and Insolvency Section), Especialistas de Concursos Mercantiles de Mexico, Instituto Brasileiro de Gestao e Turnaround, International Association of Insurance Receivers, International Women’s Insolvency and Restructuring Confederation, Turnaround Management Association (INSOL Special Interest Group)

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New INSOL Executive Committee

At the last INSOL International Board meeting held on 21st March, Sijmen de Ranitz, De Brauw Blackstone Westbroek, retired at the end of the meeting as President of INSOL International. Deryck Palmer, Cadwalader, Wickersham & Taft LLP who was also on the Executive Committee retired at the same time. Our sincere thanks to both Sijmen and Deryck for their work and continued support to INSOL during their term of office.

The Board approved the nominations of the new President and Vice-president. Robert (Bob) O. Sanderson, KPMG LLP was appointed President and Sumant Batra, Kesar Dass B. and Associates was appointed Vice-President. Gareth Hughes, Ernst & Young was nominated to continue his role of Treasurer. Claire Broughton continues as Executive Director of INSOL International.

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This issue was kindly sponsored by:

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INSOL Contacts

If you would like to send an article for inclusion in one of our forthcoming issues please contact our Technical Manager, Sonali Abeyratne at sonali@insol.ision.co.uk

If you would like to introduce a new member to INSOL International please contact our Communications Manager, Penny Robertson at pennyr@insol.ision.co.uk