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Editor's Note The common thread in the articles presented this month is insolvency law reform in an increasingly globalized world. The globalization of business and business financing has inevitably led to an increase in the number and complexity of cross-border insolvency cases. These cases are essentially a clash of economic and legal cultures as debtors and creditors from different parts of the world, and coming from different directions, seek to maximize their respective value from distressed situations. Such clashes can be long and tiresome (and sometimes rather ugly) as anyone involved in some of the long running cases in South East Asia can attest. Weak legal systems, domestic political sensitivities and the lack of separation between ownership and management mean that such proceedings are often more of a war of attrition than anything else. Yet even these cases should be looked upon as progress in that they educate players about risk and, I believe, in time will lead to greater commonality of insolvency systems and workout practices. The important point is that there remains a focus on reform of insolvency systems around the world and a general recognition that a properly functioning insolvency system is a key element in any country’s economic development. The social and political impact of such reform (especially in developing countries and regions where politically powerful families dominate business) means that this will necessarily be an iterative process spanning a number of economic cycles and political horizons. In the meantime, players in international deals need to understand, accept and importantly, pricein, the risks of deals in developing economies. The key here is understanding what can and cannot be done from a practical point of view in addition to a legal point of view. In many countries, what the law says you can do and what works in practice are often entirely different propositions – a lesson painfully learned by many creditors during the Asian financial crisis. With an abundance of capital washing around world markets, and an increasing appetite for risk, international investors are again pouring funds into Asian companies and economies, even as some are still working on extricating themselves from past problems. Companies in emerging markets reportedly raised some USD565 billion in 2006 alone. The targets of such investments include some of the Asian financial crisis’s most notorious companies and jurisdictions. To be certain, there is money to be made in these new deals, the key is however to understand the risks and to structure such deals to maximize investors’ leverage in any future default. Peter Gothard |
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Fickle Fortresses or Friendly Forums? Judicial Co-operation in Cross-border Insolvency Cases and the "Offshore" World Fickle Fortresses or Friendly Forums? Judicial Co-operation in Cross-border Insolvency Cases and the "Offshore" World This paper attempts to reflect on the question posed by its title: are offshore jurisdictions fickle fortresses or friendly forums, as far as judicial co-operation with other forums in cross-border insolvency cases and generally is concerned? Although the jurisdiction focussed on is Bermuda, reference is also made to other similar offshore domiciles. The growth of international business in a global sense has impacted on these "offshore"/"onshore" tensions in two significant ways. More broadly, the significance of private international law has increased in exponential terms, in line with the mushrooming of commercial and personal transactions with an international element. More narrowly, however, as regards the traditionally clearly defined jurisdictional boundaries between the onshore and offshore worlds, leading low-tax jurisdictions are becoming increasingly interconnected with the wider world in legal terms. Consequently, the insolvency of an offshore entity potentially has ramifications for the economic well being of "real" people in the wider world. And the efficacy of insolvency frameworks in terms of the capacity of offshore courts to co-operate with commercially connected foreign jurisdictions may have implications for whether globalisation has an ugly or ethically acceptable face. Modern insolvency laws are, very arguably, a prerequisite for an economically sound and modern jurisdiction. Business is believed to be attracted to jurisdictions such as Bermuda by lighter regulation and less potential liability for entrepreneurs. Not only is there an inherent tension between those onshore, who view the very notion of offshore legal regimes as heretical, and those offshore, who view the provision of offshore financial services as a respectable and profitable pursuit. Within the offshore world itself, there is a natural conflict of instincts between those engaged in building corporate towers, and those concerned with rescue operations when one of those towers falls, or appears to be at risk of falling down. Bearing in mind that an international consensus on approaches to judicial co-operation in crossborder insolvency cases has only recently crystallized, the leading players on the offshore stage, with their ad hoc common law practice, can take pride from having, more or less, kept pace with the onshore world. BVI, indeed, in 2003 enacted legislation based on the UNCITRAL Model law on Cross-Border Insolvency, before the U.K. and the USA. For the full article please click here. Hon. Dr. Ian R.C. Kawaley |
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AMERICAS Eye on the Americas: Calpine Energy Limited Calpine Canada Energy Ltd. [2007] A.J. No. 136 (Alta. Q.B.) In the ongoing insolvency proceedings of Calpine Energy Ltd., the largest Canada-U.S. crossborder corporate group insolvency to date, involving 300 debtor entities under Chapter 11 of the U.S. Bankruptcy Code, and 12 debtor entities under the Canadian Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (CCAA), the Canadian court in February 2007 approved a sale of some of the assets. The Calpine group includes a trust fund with its principal asset being interest in power plants. The Calpine debtors sought authorisation to market and sell certain contracts, specifically, a management agreement, an administration agreement and some operating agreements relating to the Fund, the Trust and Calpine Power L.P. (CLP) and to the operation of two power plants owned by CLP; and the Class B Units in CLP. The Court in Calpine found that the debtors had made efforts to get the best price possible, and that they did not act improvidently. The Court also found that the Settlement Agreement was not unresponsive to the interests of all parties, particularly to the primary interest of the creditors in maximising value. The Court held, however, that there was a lack of sufficient transparency and open disclosure, which resulted in a process lacking the degree of integrity and fairness necessary when the court is involved in a public sale of assets under a CCAA proceeding with many stakeholders. The judgment illustrates some of the complexities associated with proceedings involving multiple entities within a corporate group. It also highlights the need for transparency in sales conducted in the context of public CCAA proceedings that involve multiple stakeholders. It also indicates the court’s willingness to engage in a balancing of prejudice and of risks associated with different commercial strategies when dealing with complex and intertwined debtor entities and requests made to the court during ongoing insolvency proceedings. For a case note by Prof. Janis Sarra, INSOL Scholar, please click here. For the full judgment of the case please click here. EUROPE, AFRICA & MIDDLE EAST Supreme Court of Gibraltar Follows the European Court of Justice Ruling in Eurofoods Eurolife Assurance (International) Limited, Supreme Court of Gibraltar, 7 February 2007 The Supreme Court of Gibraltar has ruled that the appointment of provisional liquidators of an insolvent insurance undertaking subject to Gibraltar law constituted the opening of winding-up proceedings for the purposes of the Directive 2001/17/EC of the European Parliament and of the Council of 19 March 2001 on reorganisation and winding-up of insurance undertakings. For a case note please see 3-4 Digest, April 2007, pages 4-5. |
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AMERICAS Latin America Update: Overview of Recent ReformsA wave of bankruptcy and institutional reforms has taken hold world-wide in the last seven years. The Latin American countries have also perceived that the effectiveness and efficiency of creditor rights systems are vital to ensure financial stability that stimulates private and financial sector growth, value preservation/creation and improved access to credit. While significant progress has been made in approving new bankruptcy laws in Latin America, the process to establish reliable insolvency and creditor rights systems in the region represents an immense challenge due to many factors. An inexperienced judiciary, lack of exposure to modern insolvency concepts, lack of specialised bankruptcy courts and judicial administrators, and delays in the legal systems are some of the important issues that needs to be resolved. Legislative reforms have either taken place or underway in Brazil, Mexico, Argentina, Uruguay, Peru, Ecuador, Bolivia, Colombia, Dominican Republic and Costa Rica. A major development in the region is the enactment of Brazil's new bankruptcy and restructuring law which came into effect on 9 June 2005. This article gives an overview of the insolvency reforms in some of the countries in the region and in particular, discusses in more detail the reforms that were introduced in Brazil. For the full article please see American Bankruptcy Institute Journal, April 2007, P. 40. EUROPE, AFRICA & MIDDLE EAST Faster Handling of Bankrupt Estates in DenmarkA new Bill to amend the Danish Bankruptcy Act is due to come into effect on 1 July 2007. The objective of the suggested changes is to make the existing procedure faster, and more efficient in processing bankruptcies. The Act will be amended in a number of areas and this article examines how the suggested changes will affect bankruptcies. It is hoped this will be achieved at least partially by the new powers given to the Danish bankruptcy courts which will gain a new supervisory role in the processing of an estate in bankruptcy. Denmark has not adopted the European Bankruptcy Regulation on Insolvency. For the full article please see Europhenix, Spring 2007, P. 20 |
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AMERICAS Think Global... Act Global... The Asian financial crisis had devastating effects on many families living in and out of the countries that were adversely affected. However, ten years on, the challenges faced by these Asian countries are not unique. All around the world, countries are dealing with the opportunities and challenges created by globalisation. The article discusses three key elements that all investors have to bear in mind.
This article is based on a speech given by the author at a symposium on "Asian-Pacific Corporate Insolvency Law: Cross-Border and Comparative Perspectives" organised by the Institute of Asian- Pacific Business Law at the William S. Richardson School of Law, University of Hawaii in April 2007. For the full article by Lena Gan, please click here. EUROPE, AFRICA & MIDDLE EAST Judicial Treatment of Insolvency Matters in Nigeria Judicial intervention in insolvency cases is not a very common phenomenon in Nigeria. The reason probably could be that the economy is just picking up and still growing. Successive military regimes culminated in Nigeria being declared a pariah state by most countries of the world. The effect of this was that the capitalist nature of its economy could not blossom to the full. Both local and international companies in business suffered from acute capital drought that almost crippled their activities. Further, most businesses are what can adequately be referred to as a “one man show”. Except for few limited liability companies that carry on business in the real sense of the word and duly file their returns, others only exist on paper and in the brief cases of individuals. There is a tendency therefore that in cases where the companies should be proceeded against, debtors preferably go after the known alter- ego. This for them is a better money back guarantee. For the full article by Hon. Justice Bage, please click here. |
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INSOL International - Group Thirty-Six The Group of Thirty-six held a meeting on 3rd May 2007 at the Waldorf Astoria Hotel, New York. The guest speaker was Norma Corio of JP Morgan. Robert Sanderson, President of INSOL International gave an update on recent developments at INSOL. INSOL International New York Seminar - Thursday 21st June 2007 INSOL is hosting a one-day educational program on current hot topics that will be of great interest to insolvency and turnaround professionals. The topics covered are:
Please click here for the registration brochure. For further details please contact: Tina McGorman |
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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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