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Editor's Note As many INSOL members know, last year I relocated to Hawaii from Hong Kong. My original plan was to remain in Hong Kong until the government enacted its corporate rescue Provisional Supervision scheme, but when it became apparent that this was unlikely to happen (see Booth, The Race of the Two Tortoises: Insolvency Law Reform in Hong Kong and China, INSOL Electronic Newsletter, Jan 2007 – I realised that it was time to move on to a sunnier clime. I certainly have not chosen an insolvency law hot spot to which to relocate. The economy here in Hawaii is strong, and in 2006 the number of bankruptcies plunged 78.7 percent to 953 cases, a 16- year low. There were only eight Chapter 11 cases commenced all year. With both Hawaiian and Aloha Airlines now out of the bankruptcy court (they were never out of the air), perhaps the next major Chapter 11 filing will be triggered by the current inter-island airline price war. However, elsewhere in the Pacific, a wave of insolvency law reform is getting underway. French Polynesia is in the process of reviewing its personal bankruptcy laws, and corporate insolvency law reforms will be considered in Vanuatu and the Marshall Islands. It will be interesting to see if the insolvency law reform process extends to other jurisdictions in the Pacific and if the plethora of reforms enacted in Asia will prove to be of interest. I remain especially interested in comparative and cross-border issues and am now in the process of organising a Symposium on Recent Developments in Asian-Pacific Insolvency Law, to be held here in Hawaii in April 2007. Professor Charles D. Booth |
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| Highlight of this issue | ||||||
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The Continuing Need for Real Property and Secured Transactions Law Reform in Asia Many Asian jurisdictions inherited transplanted insolvency laws from a colonial era, which although they had been tinkered with, were still very much out of date and provided poorly (if at all) for rescuing companies. Other jurisdictions – such as China and Vietnam – had only recently enacted bankruptcy laws and were struggling with how to implement such laws during their transition from a planned economy to a more-market orientated approach. Singapore was arguably the only jurisdiction in Asia with an effectively functioning formal mechanism in place for restructuring insolvent companies. The real property and secured transactions regimes in many Asian countries were as outdated and inefficient as the insolvency laws, if not more so. It is no great secret that real property and secured transactions regimes are interconnected with insolvency regimes, and that if one of these prongs is not functioning properly it is difficult for the other to function efficiently. More significant problems arise if neither prong functions well, as was the situation in many Asian jurisdictions prior to the onset of the 1997-1998 Asian Financial Crisis. Over the last decade, insolvency law reform has been a priority throughout Asia. However, the reforms to real property and secured transaction regimes are still lagging. Many of the problems that were discussed at an international level as far back as 1999 remain evident today – enforcement over both personal and real property remains difficult in many countries: delays are common and secured creditors often need to rely on judicial assistance in uncontested cases; many of the jurisdictions still fail to provide properly for security interests over intangible property interests or for non-possessory interests; and many registration systems still need to be improved. For the full article please click here. Professor Charles D. Booth |
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| Case Decisions | ||||||
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ASIA PACIFIC Australian Shareholders Given Equal Standing With Creditors in Insolvency Sons of Gwalia Ltd v Margaretic; ING Investment Management LLC v Margaretic [2007] HCA 1 In February 2006 the Full Court of the Federal Court of Australia (the Full Court) dismissed an appeal by administrators and a non-shareholder creditor of Sons of Gwalia Limited against a decision of a single Federal Court where it held that a shareholder’s claim based on misleading conduct by the company and non-disclosure is not subject to be postponed under section 563A, and, therefore will rank on an equal basis with the claims of other creditors. On 31st January 2007, in an appeal against the decision of the Full Court of the Federal Court, the High Court of Australia dismissed the appeal and held that shareholders of failed companies can, in certain circumstances, rank equally with unsecured creditors in the winding up of a company. For a case note by David Cowling, Clayton Utz including link to the full judgment please click here. For coverage of this case in an earlier INSOL newsletter please click here. Court of Final Appeal Affirms Wide Powers Under Section 221, of the Companies Ordinance to Assist Liquidators’ Investigations In the Matter of KONG WAH HOLDINGS LIMITED (In Compulsory Liquidation) & In the Matter of Section 221 of the Companies Ordinance The Hong Kong Court of Final Appeal (CFA) in its judgment dated 15 December 2006, confirmed that the language and purpose of section 221 of the Companies Ordinance (Cap.32) (“s221 CO”), relating to the examination of persons by liquidators and production of documents to assist liquidators in the discharge of their duties, should be given a wide interpretation so as to enable liquidators to carry out their duties as effectively, quickly and economically as possible. This is the first case where the country's highest court's considered s221 CO. The CFA’s decision is one of general importance and applicability to liquidators in Hong Kong (as well as other common law jurisdictions having the same or equivalent provisions) as it conclusively addresses many of the substantive issues often raised in contested s221 CO applications. For a full case note by Johnson Stokes & Master please click here. For the full judgments please click here. EUROPE, AFRICA & MIDDLE EAST Payment of Preferential Creditors by Administrators Under Pre-Enterprise Act Administrations Re Cromptons Leisure Machines Ltd [2006] All ER (D) 178 (Dec) Re Lune Metal Products Ltd (in administration) [2006] EWCA Civ 1720 On 13th December, in Re Cromptons case, the first instance court found that it had a power, both under section 18(3) and under its inherent jurisdiction in section 14(3) of the Insolvency Act 1986, on the application for discharge of an administrator, to authorise the administrator to make a distribution to those creditors of the company who would be preferred creditors in the event of a winding up. The following day (14th December), in Re Lune Metal Products Ltd., the Court of Appeal also considered the ability of an administrator to distribute realisations to creditors. Re Cromptons Leisure Machines however was not cited. For a case note by Sandy Shandro, Freshfields Bruckhaus Deringer, please click here. For the judgment of Re Cromptons Leisure Machines Ltd., please click here. For the judgment of Re Lune Metal Products Ltd., please click here. |
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| Legislation | ||||||
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AMERICAS Brazil Modernises its Insolvency LawBrazil’s new federal bankruptcy and restructuring law, Federal Law No. 11.101, came into effect in 2006, ushering in a new era of insolvency law reform. Liquidation procedures, called falência, have been streamlined and modernised. Most significantly, perhaps, the new laws have replaced the former system of judicial supervision and rehabilitation, called concordata, with a modern restructuring regime. The new regime, recuperação da empresa, is aimed at trying to prevent premature liquidation and to encourage business plans that preserve, where possible, the going concern value of an insolvent firm. This article discusses the key changes that have been introduced and shows that the new reforms have had a positive impact whereby the country’s liquidations have dropped significantly and many leading cases have utilised the new restructuring system. For the full article by Prof. Janis Sarra, INSOL Scholar, please click here. ASIA PACIFIC Influence of China’s New Enterprise Insolvency Law on International InvestorsThis article considers some of the important debates that took place during the drafting process of the new legislation such as the priority between secured and employee claims, and the role of the appointed administrator. It also highlights some of the influences that may be expected on foreign investors once the new law comes into force. |
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| Articles | ||||||
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AMERICAS (i) Bankruptcy Court Explores Elements of Identifying a Foreign Debtor’s “COMI” in Chapter 15 and the Consequences of “Recognition” of a Foreign Proceedings as “Main” or “Nonmain” Prior to the Bankruptcy Abuse Prevention and Consumer Protection Act came into force, there has been much speculation about the impact of “recognition” under the new Chapter 15 of a foreign insolvency proceedings on domestic interests. Much of the speculation has focused on what criteria the courts will use in identifying where a debtor has the “centre of its main interests” (COMI) in order to determine whether a foreign insolvency proceeding qualifies for recognition as a “foreign main proceeding”. This article analyses the recent decision In Re SPhinX, Ltd., [ 351 B.R. 103 (Bankr. S.D.N.Y. 2006) ] which dealt with the issues of “recognition” of a foreign proceeding in Chapter 15 and the identification of a debtor's COMI for purposes of Chapter 15. For the full article please see White & Case, Insolvency Notes, December 2006. (ii) SPinX Chapter 15 Opinion Misses the Mark In the course of denying injunctive relief to the Joint Official Liquidators in the Cayman Islands voluntary winding up proceedings of the hedge fund group SPinX Funds, the U.S Bankruptcy Court for the Southern District of New York wreaks havoc with three fundamental aspects of chapter 15. In a 31 page opinion, the court neglects to apply the eligibility requirements for a foreign proceeding to qualify for recognition under chapter 15; discards chapter 15’s purely objective, nondiscretionary standards for recognition; and severs the determination of whether a foreign proceeding is a foreign main proceeding or a foreign normal proceeding from its statutory home as part of the recognition determination. For the full article in the ABI Journal, Vol. XXV, No. 10, P. 44 please click here. |
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| Publications | ||||||
Jersey Insolvency and Asset Tracking (3rd Ed.,) 2006 By Anthony Dessain and Michael Wilkins This publication has incorporated all the material changes and developments that have taken place since the publication of the second edition in 2000. The chapters cover in detail asset recovery and claimants’ rights prior to and after insolvency procedures; officers’ and directors’ duties and liabilities, piercing the corporate veil, issues in Jersey insolvency law including cross-border insolvency issues. It also has a chapter on “The human Rights (Jersey) Law 2000” and its impact upon the Desastre Law and the Companies Law on winding up. (ISBN 1901614-28-X) |
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INSOL launched its 2007 directory at a reception held on 23rd January. In addition to the contact details of our members, the directory has an updated section on “Insolvency Practitioners – Qualifications and Appointments” in 26 jurisdictions. Individual copies to members have already been posted. |
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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 |
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