Vol 6 (2009) - Issue 5

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Developing Extraordinary Restructuring Solutions to Address the Fallout in the Real Economy from the Global Financial Crisis: An Overview of a Project of the International Insolvency

In response to the global financial crisis, the International Insolvency Institute (the ‘III’) in Spring 2009 constituted a special high-level committee, the Committee on Extraordinary Restructuring Solutions (the ‘Committee’), whose mandate is to develop recommendations for addressing issues of financial distress arising in the real economies of nations. As the Committee’s name suggests, the focus is on developing ‘extraordinary restructuring solutions’, namely innovative solutions that go beyond the conventional restructuring and reorganisation approaches, to address the unique challenges posed by the global financial crisis.

The Committee was the inspiration of III Board member Richard A. Gitlin, who serves as Committee chair, and is comprised of distinguished insolvency professionals from Asia, Europe, Latin America and North America, including individuals from developed economies and emerging markets.The Committee is in the process of reviewing innovative approaches that are currently being embraced by various national governments as a means of restructuring troubled companies and industries in the real economy. The Committee also plans to recommend additional extraordinary restructuring approaches for consideration by governments. In this article, we will briefly review some of the issues that the Committee is currently considering, but this review of issues is not meant to be exhaustive nor is it meant to represent a definitive or official statement of the Committee’s views.

A fundamental premise of the Committee’s approach is that conventional restructuring and insolvency approaches may prove to be inadequate in addressing the impact of the global financial crisis on the real economies of nations. The global financial and economic crisis makes it much more difficult to achieve successful restructurings in the real economy. Specifically, the lack of liquidity hampers the ability of parties to finance restructurings and reorganisations. Furthermore, depressed global economic activity and the lack of liquidity and timely restructurings could potentially lead to widespread corporate distress or failure.

Such corporate distress or failure may have the potential, particularly in less advanced economies with less well developed insolvency systems, to overwhelm existing restructuring/insolvency institutions and processes. Economic distress may be particularly acute in certain emerging markets which do not have welldeveloped restructuring institutions and supporting legal frameworks. Certain regions affected by the crisis (e.g., Central and Eastern Europe) may not have recent experience dealing with restructurings in response to financial and economic crises. Moreover, there may be a serious dearth of local restructuring and turnaround expertise and experience in certain affected economies.

Fundamentally, the Committee believes that it is critically important that governments address these restructuring issues related to the real economy, particularly as much of the initial efforts by governments have focused on repairing financial systems. The Committee also believes that if these issues in the real economy are not addressed properly and in a timely manner, there could be further serious stress placed on the global financial system.