As restructuring and cross-border insolvency issues become increasingly global, an understanding of the influence of different cultures and some of the key drivers is critical. The INSOL panel was diverse, with members from Asia (Helena Huang, King & Wood Mallesons), North America (Renee Dailey, Morgan, Lewis & Bockius LLP), South Africa (Paul Winer, ENSafrica) and Latin America (The Honourable Judge Maria Cristina O’Reilly, National Commercial Court, Argentina). The panel shared a number of useful observations which demonstrate the way in which different cultures can affect the process and outcome of a restructuring – here are some of the keys points:
- PRC – the panel observed that the PRC Enterprise Bankruptcy Law 2006 set the stage for bankruptcy administrations in PRC, however, a myriad of issues has meant that the legislation has not been used as much as many insolvency practitioners had hoped. Factors include, a mis-match between the existing companies legislation and the bankruptcy regime. Directors of a company often feel a huge sense of humiliation if they file for bankruptcy and will therefore try to avoid it. In practice, appeasing disgruntled employees is a top priority for the PRC Courts. Attempts will often be made to maintain the company as a going concern and this can lead to a delay in the restructuring. Courts are generally reluctant to accept bankruptcy cases. At times, Government payouts to employees are made to avoid social unrest, which then becomes a challenging issue for any new investor. New labor laws enacted a couple of years after the bankruptcy legislation to protect employees has also complicated the reorganization process. Whilst efforts are being made to propel the PRC bankruptcy regime forward, the speed at which this will happen will depend on the Court which is dealing with the bankruptcy. A lot of resources have been spent on training judges but some parts of PRC are more advanced than others.
- North America – the panel observed that the restructuring culture is strong, however, it is also recognized that the time taken for a Chapter 11 often affects the debtor-creditor balance and can be frustrating for stakeholders. In response to this, the possibility of a scheme of arrangement mechanism is being considered – a “Chapter 16” which will help alleviate the time and costs associated with a Chapter 11. The new scheme regime is only at the proposal stage.
- Southern Africa – the panel observed that the restructuring culture is good and the 2011 business rescue legislation has been applied well. Schemes of arrangement have been used and the presence of large international banks with teams of lawyers and accountants working on restructurings have helped to mature the system. Judgments have been well reasoned and most Judges who have had an adequate number of cases before them have a good understanding of the law and commercial realities. On the other hand, there are no specifically designated insolvency Judges so judgments can take time even though in a rescue situation, decisions need to be made quickly to be effective. Like the PRC, trade unions must be brought on side at an early stage and the employees dealt with for a restructuring to have any chance of success.
- Argentina – the panel observed that the domicile of the company will determine the jurisdiction of the restructuring. For significant companies, this will usually be Buenos Aires. However, many Judges need training in the complexities of the insolvency law and on business issues. In 2011, legislation was also passed which allows trade unions to delay a liquidation for 2 years. Employees can also seize companies. It was observed that many aspects of the law need to be changed.
Today’s panel discussion was a useful reminder of the many cultural factors which may be at play in different jurisdictions which could either help or hinder a successful restructuring.