Annexed to this working guide is a copy of a recent initiative launched in Indonesia to encourage private sector restructuring. In effect, this initiative proposes an informal (out of court) "work out" style of corporate restructuring in appropriate cases. We do not put this forward as a perfect model but it provides a good basis for examining the prospect of the possible application of a similar scheme or model in the countries which are the subject of this project.

Thus, in this section we ask that you read the annexure [particularly the part headed "1. Adoption of Principles", paragraphs "a" to "i"] and, having considered those principles, comment on their possible application and implementation in your economy. In particular we would like to know the following:

(a) by reference to each of the above paragraphs, comment on the suitability of their application in your economy;

 

(b) state the difficulties that might be encountered in their application in your economy;

 

(c) briefly state whether (and what) changes or additions might be required to the law in your economy for the application of the "work out" methodology and whether such changes or additions are a practical possibility.

Finally, in this section, we would like to know you opinion generally on this initiative, the areas that you regard as strengths; areas that are weak; and areas where you consider modification and improvement might be made.

 

1.a. Organization and Representation

Same principle has been adopted by Korean government.

1.b. Critical Role of Senior Management

Same in Korea.

1.c. Standstill and Interim Financing

Same principle has been adopted in Korea.

Interim financing has not been viable because of financial institutions' conservatism.

1.d. Information

Same in Korea.

Sometimes corporate financial documents do not accurately show the current financial position of the debtor.

Korean government is currently working on establishing new accounting principles to guarantee transparancy.

1.e Company Restructuring Proposal

Same in Korea.

1.f. Committee's Advisory Report

Same principle has been adopted in Korea.

Advisory group has not been actively involved in the workout process because contracts between advisors and creditors' committee have not all been entered into due to discrepency over limitation on advisors' liability against the results of workout.

1.g. Negotiation of a Restructuring Plan

Same in Korea.

The process has been going generally slow and may in some cases lose the right timing to rescue the debtor.

1.h. Pre-Negotiated Bankruptcy Plans

Not suitable.

Korean bankruptcy law provides separate court proceedings for mandatory debt restructuring to be approved by the court.

1.i. Non-Discrimination

Same in Korea.

Opinion

The Jakarta initiative provides for almost same principles for workout as those applied in Korea. In practice, these principles should inevitably involve creditors' concession in their terms and conditions of debts. The current Asian financial crisis does not only impact corporate debtors but also financial institutions, that is to say, creditors themselves. In this situation, creditors generally take conservative position in negotiating debt restructuring. This frequently hinders expeditious workout process.