Vol 11 (2014) - Issue 1

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Amended Asian Bankers Association and Asia Pacific Informal Workout Guidelines and Model Agreement to Promote Company Restructuring

I. Global Informal Workout Guidelines
After intensive research and prolonged discussions for several years, INSOL International completed the 'INSOL 8 Principles' in 2000 and recommended to adopt the principles as a domestic rule in each country all over the world. The Japanese 'Guidelines for Out of Court Workout' of 2001 has been drafted referring to the Principles to some extent. Many Asian countries created workout rules and schemes to wipe out huge pile of non-performing loans immediately after the Asian currency crisis that occurred in late 1990s following the recommendations proposed by the IMF. The rules might be drafted referring to the Principles which were still work-in-progress at that time.
In addition to creating domestic rules, I propose establishing an international informal workout rule which is applicable in cross-border cases.
The economic climate has been changing very rapidly. A number of multi-national business corporations which owe huge debts to multi-national creditors are increasing. Saving ailing but valuable business enterprises by means of financial restructuring and business turnaround at an early stage is crucial to vitalise the economy.
The merits of an informal workout compared to statutory reorganisation include speed, flexibility, preserving enterprise value, cost effectiveness and others. It is desirable to establish fair and equitable rules for global workouts.

II. Asian Bankers’ Association Informal Workout Guidelines
The Asian Bankers’ Association (ABA) already approved the Asian Bankers’ Association Informal Workout Guidelines (GL) and the Model Agreement to Promote Company Restructuring by Informal Workout (MA) in 2005. And the APEC (Asia Pacific Economic Corporation) Business Advisory Council (ABAC) endorsed the same Guidelines and Model Agreement in 2007 and recommended its adoption at the APEC Financial Ministers’ Meeting in the same year. Regrettably, the recommendation has not yet been adopted by the Financial Ministers’ meeting of the APEC.
To recover from the Asian crisis of 1997, Asian countries struggled with non-performing loans pressured by the IMF and other international organisations. Korea’s KAMCO and Malaysia’s DANAHARTA were asset management companies established to dispose of bad assets owned by financial institutions in these countries. The Hong Kong Approach, the Jakarta Initiative and the Bangkok Approach were the rules for informal workouts applied in these countries. Using these tools, Asian countries have recovered from the crisis and their economies are growing.
The annual meeting of the Forum on Asian Insolvency Reform (FAIR) was held from 2001 to 2011 with participation of experts and government officials from various Asian countries and sponsored by the OECD, the World Bank, the Asian Development Bank (ADB) and the APEC. Undoubtedly, the FAIR contributed to reforming the insolvency and reorganisation laws and schemes in several Asian countries.
Among other things, the ADB organised an expert team comprised of Austrian and Asian professionals to research matters regarding cross-border insolvency, insolvency versus secured rights and informal workouts in Asia. The team presented a report (Regional Technical Assistance Report, RETA 5975) to the ADB in April 2005. The ABA GL & MA and the Asia Pacific GL & MA have been drafted referring to recommendations included in the Report.