The Third Forum for Asian

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The Third Forum for Asian Insolvency Reform
(FAIR)
Lampros Vassiliou OECD Lead Consultant for Asian
Insolvency
Progress
Pitfalls
The Hole
Insolvency Pizza
Diversified stakeholders
The Implementation Gap
Incentives
Bubble risks
The disposal culture
Emergency measures
Regional Tour
Markets changing
Multilateral criteria
New email lamprosvassiliou_at_hotmail.com
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Progress

• Restructuring revolution
• Rehabilitation Laws
• Out of court workout frameworks
• Emergency measures AMCs, RTCs, SPVs etc.
• Specialized courts and agencies

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The Hole

• Corporate sector collapse imminent despite
  currency contagion
• Inflated prices and fraud concealed by momentum
• Distrust attacks finance sector
• Gov intervenes via deposit guarantee
  recapitalisation
• IMF loans and AMC bonds surrogate for corporate
  sector losses

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Pitfalls

• Specialized courts plagued
• Fictional rescheduling the Disguised Moratorium
• Limited real restructuring
• New wave of reckless/ directed lending
• Loopholes quickly exposed and abused
• No liquidation backbone/ creditor rights base

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The Implementation Gap

• Civil remedies and secured transactions
• Prevention of fraud and corporate governance
• Rescue models outstep practice and culture
• Inappropriate role of rescue laws as stick
• Implementation major problem Enforcement absent
  tailored use of remedies

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Incentives

• Insolvency laws alone inadequate
• Triggers for sales revaluation and provisioning
• Stagnation now incentives gone informal
  workouts, AMCs
• Deposit insurance
• Good guys gone many crooks left

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Emergency measures

• AMCs, rapid disposition agencies, RTC funds,
  CDRCs, SPAVs
• Limited lives but remnants in culture
• New reckless lending evidence of moral hazard
• Overliquidity haircuts, the new dynamic
• Strong regulators key to success

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The disposal culture

• Focus on disposal rather than restructure
• Bad banks have not developed
• FRA - culture of bulk sale
• Short institutional memories

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Insolvency Pizza

• You know its a pizza because
• Whats your flavour
• The Atkins approach
• Tastes change with time
• Different recipes evolve

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Bubble risks

• Recovery or bubble has come too quick
• No change in fundamentals increase in
  competitiveness
• Wave of reckless lending flushed with cash
• Credits cards madness fuel for false growth
• Withdraw of deposit insurance

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Diversified stakeholders

• AMCs, funds, vultures, traders etc.
• Each have own agenda at restructuring table
• Government interference - TPI
• Government examples Resona?
• Predictability one offs, special cases, test
  cases, precedents

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Multilateral criteria

• ADB, IMF, Group 30, UNCITRAL, INSOL, World Bank
• Best practice criteria shaping investment
  decisions
• Efficiency, uniformity and conditionality
• Role as market movers collective AMC?
• The FAIR and FIRM

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Markets changing

• Crisis economies declining in activity
• Some stagnate Philippines
• Some too difficult Indonesia
• Some waiting China
• Some hot Chinese Taipei
• Some now moving Japan
• Some starting - India

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Country by Country
Japan
Korea
Lampros Vassiliou
China
Chinese, Taipei
The Third Forum for Asian Insolvency Reform (FAIR)
Pakistan
Hong Kong
India
Thailand
Philippines
Indonesia
Malaysia
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India

• Next NPL sale boom market
• Sick Industrial / Companies Act SARFESI
• Eradi Committee National Company Law Tribunal
  replacing Board for Industrial and Financial
  Reconstruction
• Asset reconstruction companies

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Pakistan

• 1997 creditor friendly Recovery Act 2001
  amendment for mortgagee sales
• 1999 National Accountability Bureau 30 day
  default and off to jail inconsistent
  application
• 2000 CIRC, AMC and CIRSU CIRC in swing
• Proposed Corporate Rehabilitation Ordinance
  advisory committee, DIP entry, audited accounts,
  automatic conversion

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Thailand

• Death of the Financial Sector Restructuring
  Authority (FRA) and Corporate Debt Restructuring
  Advisory Committee (CDRAC) Birth of the Thai
  Asset Management Corporation (TAMC)
• Proposals to amend the Bankruptcy Act still at
  large
• Plight of planners and the TPI case - no appeals
  
• Tricks loopholes SSM, Natural Park, Tanayong

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Indonesia

• Commercial Court Team 7
• Jakarta Initiative Task Force (JITF)
• Indonesian Bank Restructuring Agency (IBRA)
• Manulife saga
• APP Indonesia and China

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Philippines

• 1981 - 2000 SEC sojourn
• Transfer of jurisdiction to courts
• Reality of distressed and acquired assets
• Proposed Corporate Recovery Insolvency Act
• Corruption of Special Purpose Asset Vehicles
• Lack of investor interest

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Chinese Taipei

• Bulk Sales of NPL portfolios hot, hot, hot last
  year
• Financial Institution Merger Law bank mergers
• New Rehabilitation Law March/April 2004
  election put reform on back burner
• Taiwan Asset Management Company
• Financial Restructuring Fund expanding role
  beyond insolvent banks

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China

• 1986 Bankruptcy Act SOEs Liquidation
  Committee more policy directed bankruptcy
• New Foreign Invested Enterprises Enterprise
  Committee
• New Rehabilitation Law - Radical Changchun
  approach
• Four asset management companies provincial
  barriers activity started but slow - RMB
  flotation overwhelming issue put NPLs on back
  burner

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Hong Kong

• No rehabilitation law
• Companies (Corporate Rescue) Bill 30 day
  moratorium provisional supervisor employee
  priority insolvent trading still dormant
• Back door listing industry
• Chinese window companies

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Korea

• Agreement for the Promotion of Corporate Workouts
• New Corporate Restructuring Promotion Law (CRPL)
• Korean Asset Management Corporation (KAMCO) no
  limited life role being redefined - buying
  housing loans and credit card ports now 1200
  employees
• Redefining of provisioning rules ended
  securitizations true sale recourse or
  guarantee clauses in ABS
• Korea (cont)

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Korea (cont)

• CRVs and REITs CRC Industry questionable
  manipulation of stocks
• SKG Global - fraud
• New proposals for consolidated laws individual
  rehabilitation and UNCITRAL
• Reckless lending credit cards
• Home

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Malaysia

• Bank Mergers how many anchor banks?
• Secret to success of CDRC August 2001 revamp
• Danaharta / Danamodal Dato Azman
• Danaharta clear procedures only 3000 odd
  accounts special powers challenged resolution
  not disposal loan repaid early - bonds being
  redeemed only one securitization 58 recovery
  rate

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Japan

• Long term economic slump- Detailed insolvency
  restructuring procedures effective courts
• Resolution and Collection Corporation (RCC)
  similar to Thai old AMC very bad portfolio -
  will need similar orgs after IBRA, Danaharta
  loan sales must cover purchase price problem as
  land price decline
• Industrial Revitalization Corp of Japan (IRCJ)
  banks reluctant due to valuation only 6 debtor
  corps
  Japan (cont)

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Japan (cont)

• Deposit insurance March 2004 lift full blanket
  April 2005 limited coverage Japan example
  to region in this experience
• Need turnaround experts
• Resona Bank example of financial crisis
  management DICJ bought stock replaced
  management
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