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;

 

Conceptually, the methods contained in the "Jakarta Initiative" have been accepted by the authorities in Malaysia as plainly suitable for application in Malaysia, though content-wise changes may be necessary;

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

 

With the imprimatur of Bank Negara Malaysia as the central bank being placed on the Malaysian equivalent (i.e. CDRC) to the Jakarta Initiative, it is unlikely that the Malaysian equivalent of the Jakarta Initiative would meet with many difficulties except where the interests of the financial institution are do diverse and incompatible that the work out may not work. All "foreign" banks that had branches in Malaysia were required to locally incorporate Malaysian subsidiaries in 1994, which are licensed and supervised by Bank Negara Malaysia and as such the only truly "foreign" banks would be off-shore financiers. They may pose problems, particularly where their debt is large, as they are not directly under any Bank Negara Malaysia supervision;

(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.

 

Major differences between the CDRC and the Jakarta Initiative would include, inter alia :

• Unlike the apparent link between the Jakarta Initiative and INDRA, for Malaysia, there is no express tie-up or relationship between the work out and payments under the Exchange Control legislation to foreign (i.e. offshore) lenders;
• Whereas there is some element of inter-relationship between the Jakarta Initiative and the newly amended Indonesian bankruptcy law, the Malaysian CDRC framework does not require court confirmation of the re-structuring plan;
• The fact that CDRC is intended only for financial institutions, whereas the Jakarta Initiative appears to embrace all creditors. A work out embracing all creditors may be unwieldy and cumbersome. Therefore the CDRC framework, with the emphasis on financial institutions, that are the key to the success of any restructuring, is more practical and manageable.