Issue No. 2

Contents at a glance This issue covers a wide range of current information on   •   Case decisions •   Legislation •   Articles •   News •   Publications For the purpose of easy reference, the information is then set out under a region covering Europe, Africa and Middle East, Asia & Pacific Rim, or the Americas.

This is the second edition of INSOL’s Electronic Newsletter providing you with a snapshot of developments across the globe in the bankruptcy and restructuring field.

This month’s issue contains reviews of the impact of recent bankruptcy law reform in the US, Slovakia, and Nepal and summaries of significant decisions in a number of jurisdictions including the important first instance judgment of Mr Justice David Richards in England in the HIH proceeding reflecting the limits of turnover orders in ancillary proceedings when the rules of distribution in the main proceeding are materially different from those of the forum (the case is, we believe, subject to appeal). 

The editorial team were delighted to receive your comments and feedback following the publication of the first issue in November. Your suggestions and comments are always welcome. We will remain responsive and will endeavour to adapt the style and content of the Newsletter to make it as useful and user friendly as possible. We would be delighted to receive short articles for inclusion in the Newsletter - please submit drafts to Sonali Abeyratne, Technical Manager, INSOL International for consideration.
Email - sonali@insol.ision.co.uk

Nick Segal, Partner, Davis Polk & Wardwell, New York

The reform of business bankruptcy law in the US – a change of direction or just emphasis?
 
The Bankruptcy Abuse Prevention and Consumer Protection Act 2005 (“BAPCPA”) was signed into law by President George Bush on April 20, 2005 and, with a few exceptions, became fully effective on October 17, 2005. It introduces extensive amendments to the Bankruptcy Code covering both consumer and business bankruptcies.
 
BAPCPA represents the most significant overhaul of the Bankruptcy Code since the major amendments made in 1978 which introduced the modern reorganization proceeding under
Chapter 11 and the provisions providing for cases ancillary to foreign proceedings under section 304 of the Code.
 
This note provides a brief overview of the main changes introduced by BAPCPA and comments on some of the more important changes to Chapter 11 law and practice and their significance.
 
By Nick Segal, Partner, Davis Polk & Wardwell, New York
 
For the full article please click here.

Americas
 
United States
 
Second Circuit issues new opinion on non-debtor releases and x-clauses - In re Metromedia Fiber Network Inc.,

In this case the creditors challenged a largely consummated plan of reorganisation that had been confirmed by the bankruptcy court and later upheld by the District Court.

With regard to non-debtor releases, the court reaffirmed the position that “a non debtor release in a plan or reorganisation should not be approved absent the finding that truly unusual circumstances render the release terms important to the success of the plan.” The court opined that in this case, the bankruptcy court had merely found that the non-debtor trust had made a “material contribution” to the estate and this was not adequate to support the release.
 
In the same opinion, the Court construed an X-clause to affirm the priority assured to senior indebtedness. (X clauses - these are carve outs from subordination agreements that allow junior creditors to retain, and therefore not hand over to senior creditors pursuant to the subordination agreement’s turnover provisions, securities that are already subordinated to the rights of the senior creditors).

For details see Davis Polk & Wardwell, Insolvency & Restructuring Update, August 2005

EUROPE, AFRICA & MIDDLE EAST
 
United Kingdom

‘Not known at this address’: the limitations of letters of request in cross-border insolvencies
 
Re HIH Casualty and General Insurance Ltd
This case involves the insolvency proceedings of HIH Casualty and General Insurance (HIH) in Australia (liquidation proceedings) and England (provisional liquidators appointed). David Richards J at first instance in the High Court of Justice in England was asked to give directions to the provisional liquidators as to whether assets realized in England would be remitted to the Australian liquidators for distribution.

On 7 October 2005 Richards J held that the English court had no power to make an order that would have the effect of displacing the English distribution rules since the order of distribution in the Australian winding up would have been different from that applying in an English winding up. It therefore followed that the English court could not accede to the Australian court’s request for a transfer of funds to Australia. The Judge held that the power to make such an order does not exist in English law and any power under Australian law could not be exercised by the English court in a way contrary to English law.

See Allen’s Arthur Robinson, Focus: Insolvency, October 2005

See also INSOL World, Fourth Quarter 2005, page 36

Americas
 
USA
 
The Bankruptcy Abuse Prevention and Consumer Protection Act 2005
This Act came fully into force on 17 October 2005.

For details please see article by Nick Segal titled “The reform of business bankruptcy law in the US – a change of direction or just emphasis?” under the heading “Highlight of this issue” of this newsletter.

Europe, Africa & Middle East

Slovakia
 
New developments in Slovak Bankruptcy Law - By M. Stessl & P. Luiki
Slovak Bankruptcy and Restructuring Act (Act No. 7/2005), will come into effect on 1 January 2006. The new law will govern:
(i)       bankruptcy proceedings (konkurz);
(i)       restructuring proceedings (restrukturalizacia); and
(iii)     release from debt of natural persons (oddlzenie fyzickej osoby).

For more details see INSOL World, 4th Quarter, 2005 page 38

United Kingdom
 
FSA consults on new rules for financial re-insurance
The UK Financial Services Authority (FSA) published proposals on 7 October 2005 aimed at improving disclosure by insurers of how they use financial reinsurance. The new rules would apply to general insurers and Lloyd’s. This article looks briefly at the background to, and content of those proposals.

See Freshfileds Bruckhaus Deringer, Insurance and Reinsurance News, October 2005 Issue

Asia & Pacific Rim

Nepal
 
New Insolvency law in Nepal - By Bharat Raj Upreti
The Insolvency Ordinance 2005 came into force on 23 September 2005. The new law applies to limited liability companies and does not affect personal bankruptcies or statutory corporations fully owned by the government. It also applies to banks and financial institutions but this is subject to Central Bank approval if insolvency proceedings are to be initiated against such an organisation. Similarly, if proceedings are to be brought against an Insurance company prior approval from the Insurance regulatory authority is required. 

To see the salient features of the new law see INSOL World, 4th Quarter, 2005, page 22

ASIA & PACIFIC RIM
 
Australia
 
The use of Liquidator’s examinations as an investigative tool - By Andrew Magers
In Australia, considerable debate has taken place over the years about the wide examination powers afforded to liquidators and the resultant impact on the privacy of those being examined. This article suggests that the use of examinations should not be abused and should continue to be a necessary and powerful tool available to liquidators in order that a liquidator may effectively discharge their functions. The article also discusses the advantages associated with the use of examinations as an investigative tool and also highlight some of its limitations.
 
Please see Australian Insolvency Journal, September 2005

Americas
 
United States
 
Refco Bankruptcy to involve sale of futures brokerage and protected litigation over firm’s collapse
On Monday October 17th 2005, Refco Inc., and 23 of its unregulated subsidiaries encompassing operations in 14 countries at 23 locations serving 200,000 customer accounts filed for chapter 11 bankruptcy protection in New York. Refco is the largest independent commodities brokerage in the U.S and it is the fourth largest bankruptcy in US history covering $ 48.8 billion.
 
Since the chapter 11 filing, a Federal Bankruptcy Judge has approved the sale of Refco Inc the last viable business unit in the group. Refco’s already bankrupct subsidiaries are facing numerous lawsuits and the former chief executive has been formally indicted against securities and fraud charges that affected the commodity broker’s collapse.
 
For details see Greenberg Traurig LLP Updated Alert, November 2005

ASIA & PACIFIC RIM
 
China
 
Insolvency in China and Hong Kong : Practitioner’s perspective - By Alan Tang
This book has been recently published and is highly recommended for its coverage of a wide range of information. It brings the history of the Hong Kong and mainland China insolvency regimes up to date and links the two to the better known regimes in the western world. The chapters cover insolvency in Chinese history, restructuring in Hong Kong, restructuring in China, corporate insolvency in Hong Kong, enterprise bankruptcy in China, international aspects of PRC enterprise bankruptcy and a checklist of Hong Kong insolvency administrations. Each chapter contains an interesting and informative overview of its subject matter.
 
Published by Sweet & Maxwell Asia, 2005 
 
Europe, Africa & Middle East
 
Netherlands
 
Restructuring in the Shadow of the Law : Informal Reorganisations in the Netherlands - By J.A.A. Adriaanse
This book provides an insight into the practice of informal rescue operations that often takes place away from the public domain. It discusses the causes of financial difficulties and measures which are taken within the framework of strategic and operational business and financial restructuring. It also exposes bottlenecks and distinguishes success and failure factors. International developments in the field of voluntary rescue frameworks are also covered.
 
This book is based on research, interviews, surveys and 35 case studies carried out at so called “intensive care departments” of banks and at consultancy agencies.
 
Published by Kluwer International, 2005