Legal scholars and practitioners from around the globe gathered in Singapore earlier this month to discuss the development of bankruptcy, insolvency, and restructuring law in the ASEAN region.
It is difficult to imagine a subject more technical, complex and altogether uninteresting to most journalists. But it is also hard to imagine a legal subject of greater long-term importance for the economic development of the region.
Many billions in investment dollars-- that would affect the lives of many millions in the region-- will turn on whether significant progress can be made by the ASEAN nations toward the development of rules and judicial institutions that can assure the fair and efficient treatment of investors in distress situations.
The world is awash in private capital that idles on the sidelines, while badly needed infrastructure and other investment opportunities in emerging markets go unfinanced because legal risk cannot be adequately contained.
Private capital gravitates toward predictable opportunities, often in already rich countries. Companies and investors look for understandable, familiar commercial law, implemented by high-quality judges and practitioners; in strong and efficient dispute resolution systems.
A key obstacle to investment in the ASEAN region is the patchwork of laws governing business insolvency and reorganization, with different approaches and philosophies, creating uncertainty and inefficiency for growing cross-border investment. Fortunately for the region, Singapore has a legal system as advanced as any in the world leading the push for development and convergence of legal principles.
Insolvency and restructuring law is an area that is particularly important to the flow of capital and particularly in need of development. Companies in financial distress present interrelated insolvency issues in every country in which they hold assets.
When a multiple-country insolvency arises, it is often not clear which law applies, which court (if any) should take the lead, and whether representatives of the insolvent company or its creditors will be able to participate in proceedings in foreign courts or protect their interests in collateral.
Multi-jurisdictional confusion creates expense, delay, and the possibility of inconsistent judgments. That proceedings may be conducted in different languages, among court systems pursuing different policy goals, heightens challenges.
Consequently, investors need cross-border rescue and insolvency regimes that prioritize access to the courts, respect for foreign proceedings, preservation of enterprise assets, protection of operations, and fair resolution of claims. The goal in any insolvency proceeding is to efficiently rehabilitate the company, providing for a just payment of creditors while returning corporate resources to the economy. This serves the interests of both creditors and debtors.
International organizations, most prominently the United Nations Commission on International Trade Law (UNCITRAL), have developed model rules that can serve these purposes effectively. The centerpiece of the UNCITRAL Model Law on Cross-Border Insolvency is the identification of a particular jurisdiction as the “center of main interest, providing the primary forum for the “main” insolvency proceeding.
The Model Law encourages cooperation between the main insolvency proceeding and other locations to maximize the debtors’ assets, rescue companies, and protect investments and jobs. More than 40 countries have adopted some form of Model Law, including, to at least some degree, most of those in the Asia-Pacific region.
Achieving convergence through legislation is, however, a slow and uncertain process. Even without legislation, members of the judiciary can foster increased interaction, communication, and coordination between courts in these matters. The Judicial Insolvency Network (JIN) — created in 2016 by judges from the United States, Singapore, England and Wales, and Australia and others — is pursuing these ends.
Additionally, the legal community is working to identify common principles across jurisdictions and different systems that can be applied in insolvency proceedings. The Asian Business Law Institute and the International Insolvency Institute have launched such a project, the Asian Principles of Business Restructuring.
While much work remains, the international legal community has made a promising start to the vexing problems of multi-jurisdictional insolvencies.
While these legal issues excite no interest beyond the financial and legal communities, they ultimately impact the well-being of millions. Sundaresh Menon, Chief Justice of Singapore, who has led the effort to advance the rule of law in the region, recently explained what is at stake: “There is sometimes a tendency, when speaking of economic growth, to see it as an end in itself. But of course it is not, in the same way that the creation and enforcement of new laws are not ends in themselves. Instead, they find their point only in terms of suffering alleviated and lives bettered.”
Stephen Brogan is the managing partner of Jones Day