Vol 8 (2011) - Issue 5

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The Emerging Framework of Cross-Border Insolvency in and around Australia: Saad Investments, Japan Airlines and Lehman Brothers – Part Two

In Part I of this two part article, Scott Atkins examined the Australian jurisprudence concerning the Model Law on Cross-Border Insolvency (Model Law) published by the United Nations Commission on International Trade (UNCITRAL) since the enactment of the Cross- Border Insolvency Act 2008 (C’th) (CBIA), using the medium of the recent Federal Court of Australia decision of Ackers v Saad Investments Co Limited (in official liq) (Ackers v Saad).

In this second and final part, Stewart Maiden describes how the Model Law assisted the trustees of the Japan Airlines group to protect the value of that group’s business as a going concern during its transnational restructuring in 2010-11. Professor Rosalind Mason discusses the liquidation of Lehman Brothers, which demonstrates how private arrangements can provide solutions to cross-border problems that might be beyond the reach of existing legislation.

Together, those three discussions conclude that both the Model Law and private initiatives have found a place in assisting the winding up and restructuring of large and complex multinational organisations in the Australian neighbourhood.

B. Japan Airlines

Japan Airlines Corporation and its affiliated companies (for convenience, referred to as JAL) filed for court-assisted reorganisation in January 2010. It was the largest failure by a non-financial firm in Japanese history. JAL undertook a pre-packaged restructuring utilising judicial corporate reorganisation proceedings with the assistance of the Japanese government, through the Enterprise Turnaround Initiative Corporation of Japan (ETIC). All of its shares were cancelled, and new share capital was issued to ETIC in exchange for a JPY 350 billion capital injection. The group’s debts were to be paid over a seven year period, with unsecured creditors 'taking a haircut' of 87.5%. The proceeding was perhaps the highest profile Asian restructuring in recent years. It demonstrates how the Model Law can be used to assist a complex international reorganisation.

Taxiing toward trouble

JAL is one of the world’s largest air carriers. In addition to significant international carriage and cargo services, it runs the largest domestic air passenger business in Japan. In 2009, it provided passenger services to approximately 11 million international and 41 million domestic passengers6 and was Asia’s largest airline by revenue.