Asian Insolvency Systems : Closing the Implementation Gap.

284 Pages·2007·2.594 MB·English

by  OECD

Asian Insolvency Systems
CLOSING THE IMPLEMENTATION GAP
Asian Insolvency Systems
As Asian markets are now increasingly integrated in the world economy their domestic insolvency
systems need to meet the expectations of international investors and lenders. Many Asian jurisdictions
CLOSING THE IMPLEMENTATION GAP
are responding by reforming insolvency laws, introducing new procedures and strengthening
institutions, but others are much less active. How far have Asian economies advanced in building
effective and predictable insolvency systems? Do their laws, regulations and court systems now
provide greater certainty and confidence to investors and lenders? What lessons can be learned
from successful reforms in the region and what are the main stumbling blocks to implementing
new insolvency frameworks?
This publication provides a regional and country perspective on these questions. It contains the
proceedings of the last meeting of the Forum for Asian Insolvency Reform (“FAIR”), held in Beijing,
China, in 2006, which brought together officials, insolvency professionals and credit institutions
to discuss the lessons of a decade of Asian insolvency reforms. The publication includes comparative
reports on the insolvency systems of Hong Kong China, Indonesia, Japan, Nepal, Thailand and
Vietnam. It also provides insights into the role of courts and the priority of claims under the new
Chinese bankruptcy law effective since 1 June 2007.
For more information on OECD’s insolvency work and the Forum for Asian Insolvency Reform,
visit www.oecd.org/daf/corporate-affairs.
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Asian Insolvency
Systems
CLOSING THE IMPLEMENTATION GAP
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ORGANISATION FOR ECONOMIC CO-OPERATION
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Foreword
Asian countries are deeply integrated into the world economy so that it is increasingly
important to keep their domestic insolvency policies in line with the expectations of
international investors and lenders. Many Asian jurisdictions are thus continuing on the
path of insolvency reforms, promulgating new laws, introducing new procedures and
strengthening related institutions.
The Forum for Asian Insolvency Reforms (FAIR) convenes Asian and OECD policy
makers together with private sector experts to share experiences. The last FAIR meeting,
held in Beijing, China in 2006, examined progress with legal and institutional reforms in
the region in the last decade. In considering the development of national systems,
participants assessed the relevance of international standards and regional guidelines,
developed by the Asian Development Bank, INSOL1 International, OECD, UNCITRAL2
and the World Bank.
Asian insolvency systems vary widely and differences have tended to grow with
significant advances made by some countries and very modest reforms in others.
Accelerating legal reforms, adaptation to changing circumstances and conformity with
international best practice were singled out as important concerns for Asian law makers.
However, it was agreed that the most urgent priority lies in the effective application of the
law in order to close the so called “implementation gap”. Court systems in particular,
their independence and integrity, expertise and quality of service should remain a primary
goal of Asian reformers and would benefit from additional resources. In this respect,
Asian countries should also step up their efforts in supporting the development of the
insolvency professionals, and in establishing the rules which govern their compensation,
licensing, duties, responsibilities and ethics.
FAIR participants also reiterated their concern about the limited recourse to
liquidation as an effective insolvency remedy to instill financial discipline and allow
efficient reallocation of resources. Disappointment with progress in financial and
operational restructuring was another recurring concern. Against this background,
participants acknowledged the important role to be played by the private sector
- creditors, investors in distressed assets, debt traders, restructuring specialists and
others – in working hand in hand with the public sector towards innovative approaches in
the development of Asian insolvency systems.
This publication contains the proceedings of the Beijing meeting and provides a
regional and country perspective on progress in insolvency reform in Asia. The
publication includes comparative reports on the insolvency systems of Hong Kong,
China, Indonesia, Japan, Nepal, Thailand and Vietnam. It also provides insights into the

1. International Association of Restructuring, Insolvency and Bankruptcy Professionals.
2. United Nations Commission on International Trade Law.
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FOREWORD

role of courts and the priority of claims under the new Chinese bankruptcy law effective
since June 1 2007.
The OECD is grateful to the Asian Development Bank, INSOL International,
UNCITRAL and the World Bank for their contribution to the FAIR. Special thanks go to
the Development Research Centre of the People’s Republic of China for hosting the
Forum in Beijing and to the Governments of Australia and Japan for their generous
support.
The opinions expressed in this publication are those of the individual authors and do
not necessarily reflect the views of the OECD, its Members or non-OECD countries.
Elena Miteva from the OECD Corporate Affairs Division and Richard Frederick, OECD
consultant, edited this publication.

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Table of Contents
Executive Summary ...................................................................................................................... 7
Part I
Trends and Developments in Insolvency Systems in Asia
Lawmaking and Institution Building in Asian Insolvency Reforms:
Between Global Norms and National Circumstances
by Terence C. Halliday ............................................................................................................ 17
Notes ........................................................................................................................................ 42
Comparative Overview of Asian Insolvency Reforms in the Last Decade
by Soogeun Oh ......................................................................................................................... 51
Notes ........................................................................................................................................ 71
Insolvency Laws in South Asia: Recent Trends and Developments
by Sumant Batra ................................................................................................................ 75
Notes ...................................................................................................................................... 102
Indonesian Bankruptcy Law: An Update
by Subianta Mandala .............................................................................................................. 103
Issues Arising in the Cross-Border Insolvency of Groups of Companies in Japan
by Shinjiro Takagi .................................................................................................................. 109
Latest Trends and Developments in Insolvency Law in Nepal
by Bharat Raj Upreti .............................................................................................................. 113
Notes ...................................................................................................................................... 118
Asian Insolvency Systems: The Thai Perspective
by Pairoj Vongvipanond ........................................................................................................ 119
Lessons Learned: Bankruptcy Reform in Thailand
by Wisit Wisitsora-At ............................................................................................................ 133
An Update on Non-Performing Loans Resolution and Banking Reform in Viet Nam
by Hoang Tien Loi ................................................................................................................. 139
Notes ...................................................................................................................................... 143
Part II
Trends and Developments in Insolvency Systems in China and Hong Kong, China
The Court’s Role in Enterprise Bankruptcy Proceedings and Restructuring in China
by Song Xiaoming ................................................................................................................. 147
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TABLE OF CONTENTS

Issues in the Acceptance of Bankruptcy Cases by Chinese Courts
by Yu Junfu and Chen Dong .................................................................................................. 151
Notes ...................................................................................................................................... 168
The Order of Payment of Workers’ Claims and Security Interests
under China’s New Bankruptcy Law
by Wang Weiguo ................................................................................................................... 177
Notes ...................................................................................................................................... 185
Creditor Participation in China and Hong Kong, China
by Alan C.W. Tang ................................................................................................................ 187
Developing a Regulatory Framework for Outsourcing of Insolvency Work
in Hong Kong, China
by Xianchu Zhang .................................................................................................................. 193
Notes ...................................................................................................................................... 202
Part III
Internatonal Trends and Developments in Insolvency Systems
Creditor Participation in Insolvency Proceedings
by Roman Tomasic ................................................................................................................ 209
Notes ...................................................................................................................................... 219
Insolvency and Social Protection: Employee Entitlements in the Event
of Employer Insolvency
by Gordon W. Johnson ........................................................................................................... 223
Notes ...................................................................................................................................... 232
Annex Insolvency and Social Protection: Entitlements in the Event
of Employer Insolvency ........................................................................................... 235
Weaving the Safety Net for an Aging World: Lessons Learned from the Pension
and Insolvency Systems of the US, the UK, and Germany
by James H.M. Sprayregen and James J. Mazza .................................................................... 247
Notes ...................................................................................................................................... 252
Future Developments in Cross-Border Insolvency Law
by Christoph G. Paulus .......................................................................................................... 255
The Bankruptcy Criteria and Priority of Claims: An International Comparison
of Insolvency Laws
by Wang Huaiyu .................................................................................................................... 259
Annex ..................................................................................................................................... 262
Opportunities and Pitfalls in Emerging Market Restructurings:
A Strategic Perspective
by Steven T. Kargman ........................................................................................................... 267
Notes ...................................................................................................................................... 279

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ISBN 978-92-64-03832-5
ASIAN INSOLVENCY SYSTEMS:
CLOSING THE IMPLEMENTATION GAP
© OECD 2007

Executive Summary
1. Summary and objectives
The OECD, the World Bank (WB), the Australian Treasury and the Asian
Development Bank (ADB) organised the 2006 meeting of the Forum on Asian Insolvency
Reform (FAIR) on the subject Legal and Institutional Reforms of Asian Insolvency
Systems. It was hosted in Beijing, by the Development Research Centre of the State
Council of People’s Republic of China. The FAIR benefited from the support of the Asia-
Pacific Economic Co-operation (APEC), the United Nations Commission on International
Trade Law (UNCITRAL), the International Association of Restructuring, Insolvency and
Bankruptcy Professionals (INSOL) and the Governments of Australia and Japan.
The meeting gathered an unprecedented number of participants, confirming the strong
interest towards continuing the Asian policy dialogue on the subject. More specifically,
the FAIR convened over 150 delegates from 24 jurisdictions (Australia; Bangladesh;
Belgium; Canada; China; Chinese Taipei; Hong Kong, China; India; Indonesia; Japan;
Korea; Malaysia; Mongolia; Myanmar; Nepal; the Netherlands; Pakistan; Philippines;
Singapore; Sri Lanka; Thailand; United Kingdom; United States; Vietnam) and 6
international organisations (ADB, APEC, the International Monetary Fund, UNCITRAL,
the WB and OECD).
The primary objective of the meeting was to summarise the lessons of a decade of
insolvency reforms in Asia and to discuss directions for future work. In doing this,
participants used as a reference international standards, such as the UNCITRAL
Legislative Guide on Insolvency Law, the WB Principles for Effective Insolvency and
Creditor Rights Systems, the OECD Principles on Corporate Governance and Guidelines
on Corporate Governance of State-Owned Enterprises, as well as various documents and
publications of INSOL. Regional guidance developed by the ADB was also discussed as
it attempts to adapt internationally recognised approaches to the circumstances of Asian
jurisdictions. In line with usual practice, FAIR participants examined recent institutional
and legal initiatives. Special attention was paid to the main features of the draft Chinese
bankruptcy law, which entered into force on 1 June 2007.
Relevant Asian state institutions were very well represented. Participants from
Ministries of finance and justice, the judiciary, Central banks, asset management
companies, regulatory bodies of insolvency professionals, financial services regulators
and academics attended the meeting. The presence of policy makers from a large number
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EXECUTIVE SUMMARY

of Asian jurisdictions constituted an important opportunity for the Forum to contribute to
policy design in the region.
Participants acknowledged the needs for far greater regional cooperation, training and
development on insolvency in Asia. A strong desire was expressed for a country-specific
and sub-regional focus of the FAIR, in order to discuss emerging issues and formulate
more concrete and innovative conclusions relevant to the needs, concerns and traditions
of Asian jurisdictions.
In conclusion, FAIR partner organisations and participants expressed their support for
an intensified information sharing and co-operation on capacity building. This was based
on a proposal of the Australian Government to establish a Network of public and private
sector experts for around-the-year dialogue on insolvency. The Network responds to a
perception shared at FAIR meetings that on-going regional communication on reform
issues would contribute to effective implementation of existing legal frameworks, and is
likely to lead to project-focused cooperative work. Moreover, it was felt that the proposed
regional Network is a key for ensuring sustainability of the outcomes of the FAIR
meetings and the relevance of its future work.
2. Conclusions and recommendations
Participants discussed a wide range of issues which have been tackled by Asian
policy makers in their efforts to improve the functioning of insolvency systems. On this
basis, the following conclusions can be drawn:
Over the last decade, many Asian economies embarked on large-scale programmes
aiming to reform their insolvency systems. These efforts focused on enacting
sophisticated insolvency provisions and produced important positive results. However, a
lot remains to be done in terms of implementation and institution building, as lawmaking
alone cannot ensure that Asian insolvency systems function effectively.
Asian jurisdictions have taken inspiration from reforms and measures that have been
successful in OECD and other emerging economies. Some of them have, in addition,
used as a benchmark international guidance in their efforts to improve insolvency
systems. Participants agreed that there is a need to adapt global norms to the particular
circumstances of Asia in order to avoid risks of incomplete implementation. Moreover, a
case was made for a greater attention to innovative approaches taking into consideration
the constraints and characteristics of the domestic insolvency systems.
The UNCITRAL Legislative Guide and the World Bank Principles suggest a trend
towards law reform intending to rescue businesses that might remain viable if they were
financially or operationally restructured. The Legislative Guide, thus, calls for the
establishment of insolvency systems in which liquidation proceedings are balanced with
reorganisation.
In line with this trend, Asian policy makers have focused mostly on formal and
informal rescue proceedings in their recent efforts. While rescue operations played an
important role in dealing with large scale insolvencies, participants acknowledged that
little attention was paid to the improvement of the liquidation process and there is an
urgent need for policy makers to instil financial discipline by facilitating liquidation. In
the absence of credible threat of liquidation, debtors and different classes of creditors
have little incentive to agree on a rescue plan. An effective liquidation procedure
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