Vol 12 (2015) - Issue 2

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Workouts to Reorganise Troubled Business Corporations in Asian Countries

Following the recommendations proposed by the IMF, many Asian countries created workout rules, such as the Hong Kong Approach and the Bangkok Approach, immediately after the Asian currency crisis that occurred in 1997. Asset management companies created by governments, such as the Malaysian DANAHARTA, the Jakarta Initiative Task Force, the Thai Asset Management Corporation and the Korean KAMCO, purchased non- and poorly performing loans and restructured bad debts using these rules. However, these workout rules have not been effective since early 2000 in most Asian countries.
The merits of informal out-of-court workout schemes compared to statutory reorganisation procedures include speed, flexibility, preserving enterprise value and cost effectiveness. Korea and Japan have already enacted statutory out-of-court workout schemes, although some reform of the statutes may be necessary.
Company Acts in India, Hong Kong, Singapore and Malaysia, which are common law countries, provide for schemes of arrangement (SOA) or similar schemes. From a civil law country practitioner’s point of view, intervention by courts may be viewed as minimal in the SOA process. Even in SOA proceedings, most workout or negotiation processes between debtor companies and creditors, as well as between creditors, may be substantially conducted out of court. In Hong Kong and Singapore, the SOA processes operate effectively, as far as domestic cases are concerned.
In the Philippines, the Rehabilitation and Liquidation Law of 2010 provides for pre-negotiated plans and out-of-court rehabilitation. According to this new law, when a rehabilitation plan, which is agreed by the requisite majority of creditors in an out-of-court process, becomes effective it is binding on minority dissenting creditors. The debtor is then entitled to apply for injunctive relief with the court of competent jurisdiction to prohibit any individual collection executed by creditors.
In Thailand, Indonesia, Vietnam, Nepal and other countries, any informal out-of-court scheme is not backed by statue.

Hong Kong
Reorganisations in Hong Kong are usually conducted through informal workout procedures, with the support of the debtor’s main financial creditors. These arrangements involve contractual negotiations with financial creditors (often via a steering committee). While such negotiations are ongoing, financial creditors often agree to a short moratorium (or standstill) on the enforcement of their creditor rights.
Difficulties can arise where not all financial creditors agree with the approach adopted by the steering committee. The Hong Kong Monetary Authority and the Hong Kong Association of Banks have issued guidelines as to how financial creditors should conduct their affairs in such circumstances.
An alternative to an informal workout is a scheme of arrangement between a debtor and its members and creditors or any class or classes of them sanctioned by the court under section 166 of the Company Ordinance. A scheme is binding on all creditors with which a compromise is made, if it is sanctioned by the court and approved by a simple majority in number representing 75% in value of each class of creditors present, with voting at meetings convened in accordance with the direction of the court. The court will likely sanction a scheme where the debtor is acting bona fide and the scheme is one of which an intelligent and honest man, who is a member of the relevant class of creditors and acting properly in respect of his interests, might reasonably approve.