Vol 8 (2011) - Issue 4

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Inauguration of the 'East Asian Association of Insolvency and Restructuring' and Recent Developments on Restructuring Schemes in Western Developed Countries

Upon request from the Ministry of Economy, Industry and Trade (MEIT) of Japan, Nomura Institute of Capital Markets Research and I conducted research on Business Restructuring Related Matters in Foreign Countries interviewing experts including famous lawyers, judges, consultants and other professionals in the United States of America, the United Kingdom, Germany and France, then subsequently submitted a report to the MEIT on February 2011. Through the aforementioned research, we found that schemes and practices for rapid restructuring of ailing enterprises at early stages have been reformed dramatically to a large extent in these countries since the beginning of the 21st century.

For example, in the United States, Chapter 11 of the Bankruptcy Code has been the most useful tool to reorganise troubled companies since its enactment in 1978 (as amended in 2005 most recently) and a pre-negotiated or pre-arranged Chapter 11 process is now very popular in that a debtor and major financial creditors negotiate on the draft reorganisation plan and agree upon the plan in advance of the filing of petition for the Chapter 11 in order to conclude the process as soon as possible. Moreover, soon after beginning the process, the debtor company may sell its ongoing business with its assets or transfer it to a new owner by means of a Section 363 sale combined with or without stalking horse bidding. The new owner who purchased the debtor’s business and business assets – which are free and clear from any encumbrance – starts its operation without intervention by a court, US Trustee, creditors or other former stakeholders. This can be seen in the recent GM case in 2009.

In the United Kingdom (England and Wales), successive law reforms regarding business reorganisation have been made since the beginning of this century to expedite business restructuring. Most recently, prepack administration, in which a debtor company and its major creditors negotiate on a proposed draft reorganisation plan that seeks to find a prospective buyer prior to appointment of an administrator, is becoming popular. The administrator, who must be a licensed insolvency practitioner, may conclude and execute a contract to sell the debtor’s business and its assets to the buyer soon after appointment made by the board of directors of the debtor company. The administration is an insolvency proceeding under the Insolvency Act. An administrator may also be appointed by a court, a debtor or a floating charge holder.

In Germany, the Insolvency Plan proceedings for reorganisation of troubled corporations provided in the Insolvency Law of 1994 (which became effective in 1999) has been rarely used due to various reasons. The Federal Government publicised the draft Law named 'Law to Further Accelerate Company Reorganisation' in August 2010, and the draft law is expected to be adopted and become law by the end of 2011. The law is going to facilitate self-administration proceedings and an appointment of an administrator recommended by a debtor and creditors. These reforms may be useful for filing of a prepackaged plan at an earlier stage. The law will also enable shareholders’ rights in insolvency plan proceedings to be changed and impaired and is expected to be helpful for debt equity swaps which should be conducted out of insolvency proceedings so far.