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SECTION 12 - TENTATIVE PROPOSALS FOR MODEL OF BEST PRACTICES
From Section 2
All corporations, both private or state-owned (with the
exception of banking corporations), should be subject to
the same insolvency law regime.
From Section 2
An insolvency law regime should provide for the possibility
of accessing both the liquidation and the rescue processes
under a single procedure.
From Section 2
If a corporation seeks to implement a rescue process the
insolvency law regime should provide for an early assessment
of whether there is some real prospect of rescue. If the
corporation fails that or any subsequent assessment it should
be automatically transferred to the liquidation process.
From Section 2
Access to the process provided for under an insolvency
law regime should provide for a quick, convenient and inexpensive
procedure for both a corporate debtor and creditors, but
with sufficient safeguards to protect against abuse of the
process. Evidence should be provided of insolvency or financial
difficulty of a corporate debtor.
From Section 2
， Under the liquidation process
If the debtor corporation has applied for liquidation or
if it is determined that the debtor corporation is only
suited to liquidation, the powers of the existing management
should be removed and an independent administrator should
be appointed to assume those powers and the conduct of the
liquidation. Secondly, the stay or suspension of actions
and proceedings against the property of the debtor corporation
should be confined to unsecured creditors only. Thirdly,
since there would be little or no requirement of ongoing
funding for such a debtor corporation, no particular provision
need be made for it.
， Under the rescue process
In the case of a genuine rescue attempt, the position should
be quite different. In that case it is suggested that the
existing management might continue but with overall supervisory
and ultimate power in an independent administrator. Secondly,
the stay or suspension of actions and proceedings against
the property of the debtor corporation should apply to all
creditors (secured or otherwise) for a reasonable length
of time, but subject to applications by affected creditors
for relief from the stay. Thirdly, the legislation should
both sanction and provide a "super priority" (ahead of all
creditors) for funding of necessary on-going and urgent
business needs of the debtor corporation.
From Section 2
The insolvency legislation should provide for swift and
strict time limits for the initial processing of an insolvent
corporation. The court or other tribunal system must be
properly resourced to enable the process to be implemented.
The longer term administration of an insolvent corporation
which is being liquidated may be conducted through a special
government agency but with provision to enable more difficult
and complex cases of liquidation to be administered by an
outside independent specialist insolvency administrator.
The government agency must be properly resourced to enable
it to perform its functions efficiently.
Cases of rescue should be administered by an independent
specialist administrator.
All cases of liquidation or rescue should be subject to
supervision by the appropriate court or tribunal.
From Section 2
The administration of a corporation in liquidation is
a public responsibility and should be viewed as part of
the overall regulation of corporations. It is possibly best
handled by a specialist government agency which must be
adequately resourced and financed.
From Section 2
An insolvency law regime should provide, as part of the
rescue process, for an independent investigation and report
of the affairs and the financial position of the corporation.
It should also provide for an independent assessment of
any rescue proposal in respect of the corporation.
From Section 2
An insolvency law should make proper provision for the
involvement of creditors as part of the liquidation or rescue
process. In particular:
， the insolvency law should clearly define the voting
rights of creditors and should prescribe minimum requirements
for the approval of a plan of rescue;
， provision should be made for voting by classes of creditors,
particularly secured creditors, if the rescue proposal is
required to bind such classes;
， the law should also provide protection against manipulation
of the voting system and, in particular, should ensure that
a court or other tribunal is empowered to set aside the
results of voting which are obtained by the exercise of
votes of insiders or persons who are related to the corporation,
its shareholders or directors; and
， the effect of a vote of the requisite majority of a
class should be made binding on all creditors of that class.
From Section 2
An insolvency law regime should, as far as possible, preserve
the principle of equal treatment for all creditor
Accordingly, the insolvency law should limit the number
of priority claims to as few as possible.
From Section 2
An insolvency law regime should contain adequate provisions
relating to avoidance of transactions which result in damage
to creditors or conflict with the principle of equal treatment
of creditors of the same class.
From Section 2
An insolvency law regime should contain provisions for
the civil sanction of fraudulent and other conduct which
causes damage or loss to creditors of an insolvent corporation.
From Section 2
An insolvency law regime should include the provisions
of UNCITRAL cross-border model law.
From Section 8
- It is important that there is support for the value
that contractual obligations should be honoured. This
requires that individual enforcement and recovery rights
may be effectively taken and efficiently processed. This
is not only important for individual creditors. It is
also important because it operates as a pressure point
on a corporate debtor who cannot fulfill a contractual
obligation because of financial difficulty or insolvency.
A corporate debtor who wants to otherwise survive may
then have to seek remedy or relief under the insolvency
law or informal insolvency process.
- Remedy or relief for a corporate debtor from the enforcement
of individual creditor rights should support the value
of a fair and orderly collective process. The existence
of an effective and efficient formal insolvency process
serves that purpose.
- A formal collective process should provide for a restraint
on enforcement of all individual creditor rights for a
limited period of time and should only be extended if
there is a certain probability of a successful rescue
proposal. Otherwise the enforcement of secured and lease
creditor rights should not be restrained.
From Section 9
Statistical information on corporate insolvency should
be published by the responsible authority on a quarterly
basis with a yearly summary. It should provide details of:
- the number of companies which in that quarter have become
subject to a formal insolvency administration;
- breakdown of those numbers into the categories of liquidation
and rescue and, within each category, details of dates
of incorporation, reasons for failure and the principal
business in which each corporation was engaged at or immediately
prior to the commencement of the insolvency administration;
and
- estimates of the assets and liabilities of such companies.
It would also assist if, upon the completion of each corporate
insolvency administration, the responsible authority recorded
the following information to which the public would have
access, namely:
- the name of the corporation and date of incorporation;
- the names of the directors;
- the nature of the administration, the date of its commencement
and completion;
- the principle business of the company prior to the
administration;
- the cause/s of the insolvency;
- the assets (estimated and realised) and liabilities
(estimated and realised); and
- a breakdown of payments made from the administration
into general categories such as the cost of administration,
employee payments, tax payments and dividend to unsecured
creditors.
From Section 10
1 The banking sector (ideally with the endorsement and
assistance of a central bank and/or finance ministry) should
promote the introduction and development of a "code of conduct"
directed toward the use of an informal out-of-court work-out
process for dealing with corporate financial difficulty
or insolvency.
2 If necessary the work-out process might be facilitated
by establishing an independent office or secretariat to
perform the following roles:
- acting as a center to enable both corporate debtors
and banking and finance institutions to initiate a forum
for the possible commencement of the process;
- assisting, if necessary, the commencement and continuation
of the process through negotiation and mediation;
- providing continued education and training for corporations;
bank and finance institutions; and creditors generally
of the work-out process and techniques relating to refinancing,
restructuring and rehabilitation;
- referring problems and difficulties that may be encountered
in proposing elements of a work-out (in particular, problems
caused by the absence of suitable laws or the presence
of restrictive or non-facilitative laws, rules and regulations)
to government with recommendations for their improvement
or reform; and
- providing references to an established panel of independent
specialist experts and advisors whose services may be
required for the development of refinancing and reorganisation
proposals.
3 If necessary, insolvency laws providing for rescue should
be amended to enable proposals developed as a result of
the informal process to be referred to a relevant court
or tribunal for the purpose of seeking approval from creditors
and the sanction of the court or tribunal in accordance
with the provisions for such approval and sanction as contained
in the relevant insolvency law.
4 An insolvency law regime should provide for the protection
of "new money" in order to encourage and enhance the prospect
of a successful informal work-out (and formal rescue).
5 To encourage and facilitate the development of informal
work-out processes, an insolvency law regime should provide
convenient and quick access to its procedures.
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