The Third Forum for Asian
Insolvency Reform (FAIR)
Progress
Pitfalls
Insolvency Pizza
The Hole
The Implementation Gap
Diversified stakeholders
Bubble risks
Incentives
Emergency measures
The disposal culture
Markets changing
Regional Tour
Multilateral criteria
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Lampros Vassiliou
OECD Lead
Consultant for Asian
Insolvency
Progress
• Restructuring revolution
• Rehabilitation Laws
• Out of court workout frameworks
• Emergency measures – AMCs, RTCs, SPVs etc.
• Specialized courts and agencies
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The Hole
• Corporate sector collapse imminent despite currency
contagion
• Inflated prices and fraud concealed by momentum
• Distrust attacks finance sector
• Gov intervenes via deposit guarantee & recapitalisation
• IMF loans and AMC bonds surrogate for corporate sector
losses
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Pitfalls
• Specialized courts plagued
• Fictional rescheduling – the Disguised Moratorium
• Limited real restructuring
• New wave of reckless/ directed lending
• Loopholes quickly exposed and abused
• No liquidation backbone/ creditor rights base
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The Implementation Gap
• Civil remedies and secured transactions
• Prevention of fraud and corporate governance
• Rescue models outstep practice and culture
• Inappropriate role of rescue laws as stick
• Implementation major problem – Enforcement
absent – tailored use of remedies
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Incentives
• Insolvency laws alone inadequate
• Triggers for sales – revaluation and provisioning
• Stagnation now – incentives gone – informal
workouts, AMCs
• Deposit insurance
• Good guys gone – many crooks left
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Emergency measures
• AMCs, rapid disposition agencies, RTC funds,
CDRCs, SPAVs
• Limited lives – but remnants in culture
• New reckless lending – evidence of moral hazard
• Overliquidity – haircuts, the new dynamic
• Strong regulators – key to success
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The disposal culture
• Focus on disposal rather than restructure
• Bad banks have not developed
• FRA - culture of bulk sale
• Short institutional memories
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Insolvency Pizza
• You know it’s a pizza
because…
• What’s your flavour…
• The Atkins approach
• Tastes change with time
• Different recipes evolve
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Bubble risks
• Recovery or bubble has come too quick
• No change in fundamentals – increase in
competitiveness
• Wave of reckless lending –flushed with cash
• Credits cards madness – fuel for false growth
• Withdraw of deposit insurance
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Diversified stakeholders
• AMCs, funds, vultures, traders etc.
• Each have own agenda at restructuring table
• Government interference - TPI
• Government examples – Resona?
• Predictability – one offs, special cases, test cases,
precedents
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Multilateral criteria
• ADB, IMF, Group 30, UNCITRAL, INSOL, World Bank
• Best practice criteria shaping investment decisions
• Efficiency, uniformity and conditionality
• Role as market movers – collective AMC?
• The FAIR and FIRM
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Markets changing
• Crisis economies declining in activity
• Some stagnate – Philippines
• Some too difficult – Indonesia
• Some waiting – China
• Some hot – Chinese Taipei
• Some now moving – Japan
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• Some starting - India
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Country by Country Japan
Korea
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China
Pakistan
India
Chinese, Taipei
Hong Kong
Thailand Philippines
The Third Forum for
Asian Insolvency
Reform (FAIR)
Malaysia Indonesia
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India
• Next NPL sale boom market
• Sick Industrial / Companies Act + SARFESI
• Eradi Committee – National Company Law Tribunal
replacing Board for Industrial and Financial
Reconstruction
• Asset reconstruction companies
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Pakistan
• 1997 creditor friendly Recovery Act – 2001
amendment for mortgagee sales
• 1999 National Accountability Bureau – 30 day default
and off to jail – inconsistent application
• 2000 CIRC, AMC and CIRSU – CIRC in swing
• Proposed Corporate Rehabilitation Ordinance –
advisory committee, DIP entry, audited accounts,
automatic conversion
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Thailand
• Death of the Financial Sector Restructuring Authority
(FRA) and Corporate Debt Restructuring Advisory
Committee (CDRAC) + Birth of the Thai Asset
Management Corporation (TAMC)
• Proposals to amend the Bankruptcy Act – still at
large
• Plight of planners and the TPI case - no appeals
• Tricks + loopholes – SSM, Natural Park, Tanayong
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Indonesia
• Commercial Court – Team 7
• Jakarta Initiative Task Force (JITF)
• Indonesian Bank Restructuring Agency (IBRA)
• Manulife saga
• APP – Indonesia and China
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Philippines
• 1981 - 2000 SEC sojourn
• Transfer of jurisdiction to courts
• Reality of distressed and acquired assets
• Proposed Corporate Recovery & Insolvency Act
• Corruption of Special Purpose Asset Vehicles
• Lack of investor interest
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Chinese Taipei
• Bulk Sales of NPL portfolios – hot, hot, hot last year
• Financial Institution Merger Law – bank mergers
• New Rehabilitation Law – March/April 2004 election
– put reform on back burner
• Taiwan Asset Management Company
• Financial Restructuring Fund – expanding role
beyond insolvent banks
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China
• 1986 Bankruptcy Act – SOEs – Liquidation
Committee – more policy directed bankruptcy –
New Foreign Invested Enterprises – Enterprise
Committee
• New Rehabilitation Law - Radical Changchun
approach
• Four asset management companies – provincial
barriers – activity started but slow - RMB flotation
overwhelming issue – put NPLs on back burner
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Hong Kong
• No rehabilitation law
• Companies (Corporate Rescue) Bill – 30 day
moratorium – provisional supervisor – employee
priority – insolvent trading – still dormant
• Back door listing industry
• Chinese window companies
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Korea
• Agreement for the Promotion of Corporate Workouts
• New Corporate Restructuring Promotion Law
(CRPL)
• Korean Asset Management Corporation (KAMCO) –
no limited life – role being redefined - buying
housing loans and credit card ports now – 1200
employees
• Redefining of provisioning rules ended
securitizations – true sale – recourse or guarantee
clauses in ABS
Korea (cont)
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Korea (cont)
• CRVs and REITs – CRC Industry – questionable –
manipulation of stocks
• SKG Global - fraud
• New proposals for consolidated laws – individual
rehabilitation and UNCITRAL
• Reckless lending – credit cards
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Malaysia
• Bank Mergers – how many anchor banks?
• Secret to success of CDRC – August 2001 revamp
• Danaharta / Danamodal – Dato Azman
• Danaharta – clear procedures – only 3000 odd
accounts – special powers challenged – resolution
not disposal – loan repaid early - bonds being
redeemed – only one securitization – 58% recovery
rate
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Japan
• Long term economic slump- Detailed insolvency &
restructuring procedures – effective courts
• Resolution and Collection Corporation (RCC) –
similar to Thai old AMC – very bad portfolio - will
need similar orgs after IBRA, Danaharta – loan sales
must cover purchase price = problem as land price
decline
• Industrial Revitalization Corp of Japan (IRCJ) –
banks reluctant due to valuation – only 6 debtor
corps
Japan (cont)
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Japan (cont)
• Deposit insurance – March 2004 lift full blanket –
April 2005 – limited coverage – Japan example to
region in this experience
• Need turnaround experts
• Resona Bank – example of financial crisis
management – DICJ bought stock – replaced
management
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