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euro  enix  f The journal of INSOL Europe ISSN 1752-5187 9 771752 518006 3 9 Spring 2010 Academic Forum Conference Previews Lehman Collapse The UK Administrators’ perspective Dubai World Restructuring and Insolvency UK Bankruptcy Tourism Stephen Baister looks at the issues Issue 39  30

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  • euro enixfThe journal of INSOL Europe

    ISSN 1752-5187

    9 7 7 1 7 5 2 5 1 8 0 0 6

    3 9

    Spring 2010

    Academic ForumConference Previews

    Lehman CollapseThe UK Administrators perspective

    Dubai WorldRestructuring and Insolvency

    UK Bankruptcy Tourism Stephen Baister looks at the issues

    Issue 39 30

    Eurofenix Spring 2010:Layout 1 8/4/10 14:36 Page 1

  • Eurofenix Spring 2010:Layout 1 8/4/10 14:37 Page 2

  • EDITORS COLUMN

    Spring 2010 3

    Welcome Annerose Tashiro Guy Lofalk

    Bine ai venit

    What is the culture inrescue culture?This magazine gives us anoverview of the impact of thefinancial crisis in Dubai thatapparently all of a suddenhappened to hit the world at the end of last year.

    Culture is about tradition,identity, symbols, commonsense, values and also pride:intangible assets. Rescue isabout financial data, riskanalysis, legal scrutiny, corebusinesses and finally futureprofits: very tangible things,hard facts. Are not in manypeoples mind the toughdecisions around a companyrescue the complete opposite to whatever one imagines asculture?

    Burj Dubai was plannedand projected to be the pride ofDubai: a symbol to show theworld the power anddominance of the financialstrength of Dubai the tallest,biggest and most amazingproject ever. The worldwidefinancial crisis seemed not tohave touched the United ArabEmirates. Dubais bankingsector could and did competewith London and New York.

    Then, in December 2009Dubais near-default on $36billion in debt shook the world.The capital markets began tosee the next big clash afterLehman. Dubais real estatebubble burst and Dubai Worldand Dubai Holding were at thetop page of every financial

    paper for some time. Theconstruction at the two palmtrees and many other projects inDubai were stopped. It wasdangerous.

    Abu Dhabi, the oil-richneighbour has helped Dubai inthe past and stepped up withsome $10 billion to rescue itssister state in mid December.On 4 January 2010, at itsofficial launch ceremony, theworlds tallest man-madestructure, originally known asBurj Dubai, was renamed BurjKhalifa, in honor of thepresident of the United ArabEmirates and emir of AbuDhabi, Sheikh Khalifa binZayed Al Nahayan. This greatproject deserves to carry thename of a great man said

    Sheikh Mohammed Bin RashidAl Maktoum, Prime Ministerand Vice President of theUnited Arab Emirates (UAE),and Ruler of Dubai.

    Finally the pride of Dubai is named after that person who helped to safeguard itscompletion and to rescue theoverall projected goal of theemirate Dubai.

    At the beginning of thisdecade, the tallest monument is a momentum of rescue thateven needed to overcomepeoples feelings, pride andidentity. We shall see whetherthis is the theme for this decade.

    Lucky that the arab emiratesare united emirates. Would aproject in France be renamedafter Queen Elizabeth II?

    Ce este culture nrescue culture ? Prezentul numr al publicaieinoastre ofer o perspectiv deansamblu asupra unorneateptate consecine alecrizei financiare din Dubai,care, aparent fr vreun semnprevestitor, a surprins lumea lasfritul anului trecut.

    Culture presupunetradiie, identitate, simboluri,discernmnt, valori, dar idemnitate: bunurile intangibile.Rescue presupune informaiifinanciare, analiza riscurilor,examinarea minuioas aaspectelor legale, definireaactivitii eseniale antreprinderilor, n sfritprofituri viitoare: bunuri ct sepoate mai tangibile, fapte,fapte concrete. Nu cumva oaredeciziile dure privitoare lasalvarea ntreprinderilor suntpentru muli oameni contrariifelului n care concepemcultura?

    Burj Dubai a fost planificati proiectat s devin mndriaDubaiului : un simbol care sarate lumii puterea icaracterul dominator alfinanelor Dubaiului, cel mainalt, cel mai mare i cel maiuimitor proiect conceputvreodat. Criza financiarmondial prea s nu fi atinsEmiratele Arabe Unite. Bnciledin Dubai aveau suficienteresurse i concurau din plin cucele din Londra i din NewYork.

    Apoi, n decembrie 2009,lumea ntreag a fost zguduitla aflarea vetii privitoare laincapacitatea aproape total aemiratului de a ndepliniobligaii de plat n valoare de36 de miliarde de dolari.Pieele de capital se pregteaus ntmpine urmtoarea mareprbuire financiar dupLehman. Bica de spunimobiliar a Dubaiului s-aspart, iar Dubai World i DubaiHolding au fost pentru o vreme

    pe prima pagin a fiecrui ziar financiar. Lucrrile deconstrucie ale insulelorartificiale de forma a doipalmieri, precum i multe alteproiecte din Dubai au fostoprite. Primejdia era preamare.

    Abu Dhabi, vecinul bogat n petrol, dduse i n trecut o mn de ajutor emiratuluiDubai, iar la jumtatea luniiDecembrie a contribuit lasalvarea statului fresc cuaproximativ 10 miliarde dedolari. La 4 ianuarie 2010, laceremonia oficial deinaugurare, cea mai naltconstrucie din lume,cunoscut pn atunci dreptBurj Dubai, a primit numeleBurj Khalifa, n onoareapreedintelui Emiratelor ArabeUnite, emirul statului AbuDhabi, eicul Khalifa bin ZayedAl Nahayan. Se cuvine s i se dea acestui mare proiectnumele unui mare om, a spusemirul Dubaiului, eicul

    Mohammed Bin Rashid AlMaktoum, prim ministru ivicepreedinte al EmiratelorArabe Unite.

    Astfel, acea mndriearhitectonic a Dubaiului aprimit numele celui care n-apregetat s pun umrul ladesvrirea ei i, totodat, la salvarea proiectului deansamblu al emiratului.

    La nceputul acestuideceniu, cea mai semeaconstrucie furit de mnaomului poate fi socotit unsimbol al elanului salvriicelorlali, pentru c a trebuit sdepeasc egoismul, orgoliuli temerile de pierdere aidentitii. Vom vedea n cemsur este aceasta temadeceniului.

    Din fericire emiratele arabesunt emiratele unite. Ar fi oarecu putin ca un proiectfrancez s fie redenumitRegina Elisabeta a II-a?

    Eurofenix Spring 2010:Layout 1 8/4/10 14:37 Page 3

  • 4 Spring 2010

    Contents

    REGULARS

    Editors ColumnAnnerose Tashiro & Guy Lofalk

    Executive Column Marc Udink

    Book reviewsNew publications

    Presidents Column Patricia Godfrey

    Technical ColumnMyriam Mailly & Emmanuelle Inacio

    News round-up Time for Timisoara

    US ColumnCentre of main interests

    Country reportsGovernment response to the financial crisis

    Dates for your diaryINSOL Europe contacts

    INSOL EUROPE

    Academic Forum conference previews Leiden & Vienna

    Turnaround Wing Successful restructuring of an ailing business

    Judicial WingReport from Stockholm

    3678101136

    202638

    44

    44Government response to thefinancial crisis

    11INSOL Europes 6th EECCConference will be heldthis year in Timisoara,Romania, 7-8 May

    46

    Eurofenix Spring 2010:Layout 1 8/4/10 14:37 Page 4

  • Spring 2010 5

    12

    16

    18

    222428

    303234

    40

    FEATURES

    UK Bankruptcy TourismStephen Baister looks at the issues

    Dubai WorldThe new restructuring and insolvency regime

    Cross-border recognition under the Common Law

    Roundtable discussion in RussiaInvestigating the affairs of an insolvent debtor

    Turnaround procedures in RussiaProposed amendments

    New trendsin Estonian insolvency law

    Lehman collapseThe UK Administrators perspective

    Serbian bankruptcy law Redefined and improved

    Insolvency in RomaniaPractice and Theory

    Spanish insolvency proceedingsEnforcement of bank guarantees

    Australian insolvency lawShareholders vs. creditors42

    34The end of 2009meant the beginningof economic crisis in Romania

    12A debtor is free to move hiscentre of main interests buthow do you ascertain if theyhave in fact done so?

    Eurofenix Spring 2010:Layout 1 8/4/10 14:37 Page 5

  • 6 Spring 2010

    EXECUTIVE COLUMN

    MARC UDINKINSOL Europe Secretary General

    The world is still asking for more

    F or the last 20 months ourorganisation and itsmembers have been in thecentre of things. The global crisishas challenged our instinctswherever we went. Ours is one ofthe most relevant and testedprofessions during these times. Allin all I feel we have been able tobring the much needed expertiseand wisdom to the table. And wehave been instrumental in many if not all solutions.

    We should not believe this isnow coming to an end. What wesee is a prolonged period of testsstill in front of us. And we cannotand should not run away from thechallenge. Time and time again wesee all industries asking for ourknowledge and seeking our advice.In the last three years we havebeen able to reshape ourselvesfrom mere technicians into elderstatesmen bringing peopletogether and finding the rightbalance in every crisis. We haveshown our best and I see nogovernments taking theresponsibilities away from us.Apparently, the public trusts usand entrusts huge responsibilitiesto our proven and capable hands.

    It is as I have often said aprivilege to assist in leading thisgreat organisation. I have seen theorganisation mature and I haveseen its members reach newsummits. I have seen ourambitions expand and I have seenus delivering on these ambitions. Iam especially proud we now haveso many leaders leading ourorganisation. Over the years wehave seen great presidents doinggreat things and continuing to do

    so after stepping down. But wenow have a second and even athird layer of leadership. Thisshows us how we have grown andwhat we have done. This is evenmore worthwhile if youacknowledge the fact that so muchof our work is done by unpaidvolunteers.

    We are everywhere, the wholeyear through. We are in almostevery city in Europe and many

    government bodies now know ourname and what we do. We areasked for advice by the EuropeanParliament. We write reports wematter. This why we need to keepon doing this. The world is askingfor more of what we have to offer.We dont have to do it for free, butwe have a responsibility to givewhat we have and help societysolve its problems.

    We now have asecond and even

    a third layer ofleadership.

    Eurofenix Spring 2010:Layout 1 8/4/10 14:37 Page 6

  • Spring 2010 7

    BOOK REVIEWS

    EditorsGuy Lofalk,Lofalk Advokatbyr AB (Stockholm)Annerose Tashiro, Schultze & Braun (Achern)

    Executive CommitteeLibby [email protected] [email protected] Lofalk (Joint Chief Editor) [email protected] Paul Newson (Designer & Publisher)[email protected] Giulia [email protected]. Annerose Tashiro (Joint Chief Editor)[email protected] Sincu [email protected]

    Editorial boardAgustn Bou, [email protected] Buhardt, [email protected] [email protected] Conaway, [email protected] Csia, [email protected] Gielen, [email protected] Sandvik, [email protected] Irina [email protected] Taylor [email protected] [email protected] Trapitsyn, [email protected] Trommer [email protected] Vallens, [email protected] Verrill, [email protected] Viimsalu, [email protected]

    Eurofenix is published by PNDesign on behalf of INSOL Europe.Correspondence, including ideas for articles, should be addressed to:Paul Newson, PNDesign, Barton House, 61 High Road, Chilwell, Nottingham NG9 4AJ UKTel: +44(0)115 922 0017Email: [email protected]: www.pndesign.co.uk

    Translation: Ana Irina Sarcane

    Printed by: MRP Print([email protected])Advertising & Sales enquiries:Edward TaylorMRP Print ([email protected])Jubilee House, Nottingham Road, Basford, Nottingham NG7 7BT UK. Tel: +44(0)115 955 1000

    NEXT ISSUE PUBLISHED: June 2010Copy deadlines available on request from Paul Newson, email:[email protected]

    Disclaimer: No responsibility (legal or otherwise) is accepted bythe publisher, the editor, the executive panel of INSOL Europe orthe contributors for any errors, omissions or otherwise. Theopinions expressed in the articles that appear are not necessarilyshared by the editor or publisher or any representative of INSOLEurope, or by the firms or organisations of which the authors aremembers. Copyright: INSOL Europe 2010. No part of thismagazine may be reproduced, or transmitted, in any form or byany means, without the prior permission of INSOL Europe.Images iStockphoto.com or Fotolia.com (unless specified otherwise)

    Spring 2010

    euro enixfBook ReviewDirectors Disqualification and Insolvency Restrictions (3rd edition)Authors: Adrian Walters, Malcolm Davis-White QC) (2010, Thomson/Sweet& Maxwell) 1072pp, 180. ISBN 978-1-84703-333-8)

    Directors disqualificationreflects the need to provide apunishment for misconduct inthe business arena and to deterthose minded to abuse theprivilege of the incorporatedform. Its use as a regulatorytool has been widely acceptedand has even seen extension to the competition as well ashealth and safety sectors where it plays a role in policingmanagement behaviour. This text, retitled with thereplacement of the wordbankruptcy by insolvency,takes into account changes in the law since the secondedition was published in 2005including the ever-expandingvolume of case law and otherstatutory developments.

    The major changes have comein part from the introduction ofdebt relief orders as part of thearsenal of personal insolvencylaw measures, for whichrestriction orders are alsoenvisaged for debtorsbreaching their terms. Further

    changes have resulted from theintroduction of a framework forthe recognition of foreigndisqualification orders broughtin as part of the reforms leadingto Part 40 of the CompaniesAct 2006. This hasnecessitated the inclusion of an extra chapter on theinternational dimension, whichalso deals with the cross-

    border effect of disqualificationsbetween the variousjurisdictions into which theUnited Kingdom is divided aswell as the potential effect ofEuropean legislation such asthe European Company Statuteand the European InsolvencyRegulation. The position in theoffshore Crown Dependenciesis also covered in this chapter.

    As with previous editions, thetext contains full references tostatutory provisions in the areatogether with the relevantpractice directions, guidelinesand court forms. Excerpts fromthe statutory regimes before theintroduction of the CompanyDirectors Disqualification Act1986 are also included. In sum,this is an essential and usefultext for those involved withcorporate management in theUnited Kingdom.

    Paul Omar, Senior Lecturer atthe Sussex Law School andSecretary of the INSOLEurope Academic Forum

    We welcome any relevant book reviews which can be added tothis page in the interests of our members. Please send your

    suggestions or articles to [email protected](clearly marked eurofenix book review)

    Eurofenix Spring 2010:Layout 1 8/4/10 14:37 Page 7

  • 8 Spring 2010

    PATRICIA GODFREYINSOL Europe President

    Although I find it difficult to believe, I am almost half way through my year asPresident it is therefore a good opportunity to take stock of recent and futurehighlights amongst our many activities

    PRESIDENTS COLUMN

    Spring brings new initiatives

    Partnering andcollaborating on eventsSince our annual conference inStockholm, INSOL Europe hasorganised or partnered a numberof conferences and events. Forexample, we joined forces withThe Lawyer for their annualrestructuring and insolvencysummit in Brussels in Februarywith a number of membersattending and speaking at this two-day event which Council Member,Steffen Koch, chaired. Increasinglyco-labelling with prominentorganisations is proving a goodway to get the INSOL Europemessage to a wider audience andattract new members. I should alsomention INSOL Internationalwhere we are a memberorganisation and whose annualconference took place in Dubai inFebruary about which see morebelow.

    Over the coming months weare pleased to be a cooperatingpartner for the 6th HandelsblattAnnual Corporate RestructuringConference, Frankfurt, Germany(29-30 April), the Academy ofEuropean Laws Cross-BorderInsolvency Conference in Trier,Germany (20-21 May), theLithuanian-Germany LawyersAssociation Baltic StatesInsolvency Conference, Vilnius,Lithuania (20-21 May) and theInternational Insolvency Institutes10th Annual Conference, Rome,Italy (78 June).

    Further events are of course inthe pipeline, including the jointR3/INSOL Europe one-dayconference in London, which isnow in its 7th year. We hope to get

    a good attendance from the UKand abroad where practitionersfrom across the two membershipswill have an opportunity to shareexperiences and debate topicalissues from current cross-bordercases, within Europe and beyond.

    Another event in the pipelineis the INSOL Europe AcademicForum conference in Leiden at thebeginning of July. This is beingorganised in conjunction with theLenders Group and we have beenworking closely with Bob Wesselsand his team over recent monthsto bring together a programmewhich delivers an excellent cross-section of academics, practitionersand lenders from a number ofjurisdictions. I am delighted thatDennis Turner, Chief Economistat HSBC has agreed to be ourguest speaker. Based on the lenderswho have agreed to speak andthose that have indicated theirinterest in attending the event, Iam confident that it will prove anexcellent platform to furtherdevelop this relatively new groupwithin our organisation.

    Cross-border crisismanagement in thebanking sectorThe financial crisis has highlightedthe importance of putting in place effective cross-borderarrangements to handle crisis inthis sector. We are only too awareof the high profile banking failuresover the past 18 months whichinclude Fortis, Lehman and thevarious Icelandic banks. No onecan deny the serious shortcomingssuch failures reveal in the existingarrangements. Measures have

    already been taken to upgradedeposit insurance, strengthencapital requirements and reformof EU supervisory infrastructure.The European Commission takesthe view that the existingarrangements are clearlyinsufficient to stabilise and controlthe systemic impact of cross-border financial institutions andthat a new legal framework mustbe put in place. As a result it hasput forward proposals for a newframework designed to equipauthorities with the right tools andlegal provisions to handle cross-border banking failures. In doingso it is keen to minimise costs totax payers across Europe and seeksto manage large bank failureswithout damaging financialstability. The main focus is ondeposit taking banks and theconsultative papers currentlyunder review adopt a broadranging approach and cover thefollowing key issues: earlyintervention, bank resolution andthe potential need to harmoniseexisting insolvency procedures tofacilitate the winding-up and re-organisation of cross-borderbanking groups. The Commissionhas consulted a large number ofstakeholders and a public hearingis due to be held shortly topublicise the results. Financialinstitutions in difficulties or actualinsolvency remain a hot topic, notleast with cases such as Lehmancontinuing to hit the headlines ona regular basis.

    Failures within thebanking sector

    remain a hot topic,not least with cases

    such as Lehmancontinuing to hit the headlines.

    Eurofenix Spring 2010:Layout 1 8/4/10 14:37 Page 8

  • PRESIDENTS COLUMN

    Spring 2010 9

    The next normal banking after the crisisIf grappling with increasinglyonerous regulatory burdens wasntenough to ensure sleepless nightsin the financial sector, aninteresting paper has just beenpublished by McKinsey: The NextNormal Banking after the Crisiswhich provides an interestinganalysis of what it takes and whowill survive beyond the crisis.Despite ongoing ambiguity aboutmarkets, risk regulation anddemand, it warns that bankleaders should have little doubtabout one thing: long-termstructural changes to the industryare being forged in the crucible ofthe crisis. In looking at the natureand effect of possible permanentchanges, McKinsey conductedresearch and interviews withleading institutions throughout thecurrent crisis and performed ananalysis on 25 global banks to seehow they might function underdifferent macro and regulatoryscenarios. The results are veryinteresting, not least when viewedin conjunction with the EUproposals for regulatory reformacross the sector. Having analysedcertain changes and disruptionswithin the system which McKinseysee as here to stay, it then goes onto look at what leading banks willneed to do to thrive in the NextNormal. In the short term it sees2010 as another year of significantuncertainty which is borne out bymarket activity. It forecasts somemajor regulatory changes gettingironed out in the course of theyear, impairments likely to peak inmany markets and a wave of assetsales gaining momentum. All in allan interesting read forpractitioners as it presents a widercommercial perspective on theindustry at a time where the futurefocus of our profession is ondealing with existing failures andfuture legal and regulatory reformwithin the sector.

    Dubai a fitting locationfor INSOL InternationalReturning to some activities andevents which have provided theopportunity to present or toenforce the INSOL Europe

    message with a wider audience, Ishould like to mention the INSOLInternational conference in Dubaiin February which I and otherINSOL Europe Council membersattended. I am sure at the timewhen plans were made to hold theevent in Dubai the organiserscould not have foreseen thepoignancy in the choice of venue.In the course of the conference weheard a lot about the financialproblems in Dubai andneighbouring territories but also ofthe huge efforts afoot to addressthe problems. Both the UK andUS insolvency laws are currentlyinfluencing the decisions in Dubaias highlighted in an excellentarticle in this edition of eurofenixby Jane Flournoy of Denton WildeSapte.

    The Dubai conferencepresented a further opportunity forme to meet with Sumant Batra,INSOL Internationals currentPresident and his Deputy, GordonStewart. The Executive andCouncil of INSOL Europeappreciate that as an INSOLInternational memberorganisation we need to ensure ourmembership are fully aware andseeing value for the part of theirmembership subscription which isused to discharge our payment toINSOL International. A numberof new ideas were discussedincluding possible future projectsand a joint event with INSOLInternational. I hope to reportprogress on these ideas by the timeof our next edition.

    Seeking greater Franco-Anglo-North Americanunderstanding andcooperationThe other event I have recentlycontributed to and wouldspecifically mention is a forumentitled Cross Currents Insolvency in Continental andCommon Law Context organisedby the Consul Nationale and theFondation pour le droit continentalin Paris in March. This event wasco-steered by the French judge,Yves Merlat (a member of ourJudicial Wing), Marc Andr (ourCouncil member) and VincentGladel (President of the Conseil

    National des Administrateursjudiciaries et Mandatairesjudiciaries the French nationalbody for practitioners akin to R3or similar organisations and otherjurisdictions). The event broughttogether a delegation from theUK, France and the US/Canadawhich examined rescueproceedings available in thedifferent jurisdictions, thephilosophy underlying insolvencylaw and the role of the judiciary.We then had a highly interactivesession over two days with casestudies presented by eachjurisdiction followed by a livelydebate where participants from theother jurisdictions could cross-examine the presenters and initiatedebate on where they saw meritand equally where they sawshortcomings with the approach orproceedings in a given jurisdiction.

    From a UK perspective Ipresented the IMO Car Wash casewhich led to an interestingdiscussion on the rights andwrongs of using majority voting tocram down or wipe out juniorcreditors and shareholders by theuse, in this instance, of a UKScheme of Arrangement coupledwith Administration and a Pre-Pack. Ironically in the course ofthe forum the Insolvency Serviceissued a press release aboutproposed future changes to thepre-pack regime which provedhighly topical. To my mind, theevent represented an excellentexample of how we have movedon from the early years of theEuropean Insolvency Regulationwhere COMI disputes prevailed,to a more mature and constructiveanalysis of how a cross-borderrescue can be achieved using acombination of procedures acrossa range of jurisdictions. A majorsource of consensus was a desire tounderstand the finer details ofpractice in the differentjurisdictions and see where wemight each learn from one anothergoing forward.

    6th Eastern EuropeanCountries Committeeconference, TimisoaraOur next major event is the EECCConference in Timisoara in May.

    Much work has gone intodeveloping an excellentprogramme which I wouldstrongly encourage you to support.

    At the time of writing thiscolumn there are a number of keyactivities in the pipeline which Ihave already mentioned. By thetime you read this edition ofeurofenix, you will also havereceived details of our forthcomingAnnual Congress in Vienna and Iwould strongly encourage you tobook early to avoiddisappointment!

    Last but not least, I alwayswelcome your thoughts, views andsuggestions on current activitiesand the future path for ourorganisation. Therefore if youhave any burning comments youwould like to make please feel free to email me [email protected]

    Eurofenix Spring 2010:Layout 1 8/4/10 14:37 Page 9

  • 10 Spring 2010

    TECHNICAL COLUMN

    MYRIAM MAILLYINSOL Europe Co-Technical Officer

    EMMANUELLE INACIO INSOL Europe Co-Technical Officer

    Harmonising & Networking

    O ne key objective of ourcurrent President PatriciaGodfrey was to appoint aTechnical Officer to further bolstertechnical support to the membersof INSOL Europe. We are bothproud and honoured to be onboard and to serve the technicalinterests of INSOL Europe.

    After having the opportunityto introduce ourselves in theprevious edition of eurofenix(pages 8 & 9), it is now time for us to inform all the members ofINSOL Europe of the work wehave done during the last threemonths since our appointment.

    Articles 21 and 22We started our Technical Officersfunctions in collecting answers toquestionnaires regarding Articles21 and 22 of the EuropeanInsolvency Regulation. As you allprobably know, these Articles referto Member States procedures forpublication and registration. Asthere is no centrally coordinatedreference work enablingpractitioners to check MemberStates procedures, INSOL EuropeDeputy President Chris Laughtonasked us to assist him to publish adefinitive guide by Member State.You will find the reports under theTechnical subject section on theINSOL Europe Website.Regrettably, neither publicationnor registration tends to be widelyknown in other jurisdictions inspite of the fact that it ismandatory, and we therefore hopethat the new publishedcontribution will help insolvencypractitioners throughout theEuropean Union. In this

    connection, we will be grateful ifINSOL Europe members fromBulgaria, Cyprus, Poland,Romania and Sweden could helpwith this project, as we do notcurrently have authors for thesecountries reports.

    HarmonisationcommitteeAs you might have been informed,INSOL Europe is now heavilyinvolved in the European UnionInstitutions activities. Through ourTechnical Officers functions withinINSOL Europe, we were extremelyhonoured to participate, with aleading group of experts oninsolvency matters, in thischallenging project. INSOL Europehas now formed a Committeewhich had the task to prepare abriefing note. The Committeeconsists of Neil Cooper, Daniel Fritz, David Marks QC, Bob Wessels, Miguel Virgs, NoraWouters, Guy Lofalk, Siv Sandvik, Anna Pukszto and Robert vanGalen. The main issue of thisbriefing note on insolvency law,requested by the EuropeanParliament, was to assess whetherharmonisation of insolvency law atEU level is necessary or worthwhile.We look forward to seeing theoutcome of the INSOL Europecontribution in the EU law-makingprocess!

    In the next months, we will do our best to ensure that theglossaries of insolvency terms for allcountries will be available on ourwebsite. In this connection, we areproud to assist Florian Bruder,Linda Smith and Caroline Tayloron this committee.

    Get LinkedInWe would like also to thank all theINSOL Europe members whojoined our INSOL Europe Groupon LinkedIn. This network is afantastic opportunity for allmembers to exchange their views,their contacts and to strengthenthe community of INSOL Europemembers. New discussions oninsolvency matters are sent outevery week and we will encourageeach of you to take part in thesevery interesting debates. ForINSOL Europe members, who arenot yet part of this network, besure to join us on LinkedIn!

    Last but not least, we wouldlike to express our warm gratitudeto Caroline Taylor who is ourindispensable coordinator for ourwide-ranging tasks.

    We are of course grateful forthe support of the manycontributors to our website fromdifferent jurisdictions over the lastfew months and would be pleasedto offer guidance to any memberwho feels that they may also beable to contribute. There remainsmuch work to be done in order tobuild on and maintain thetechnical content of the site. Please therefore do not hesitate to get in touch by email [email protected]

    We look forward toseeing the outcomeof the INSOL Europecontribution in the EUlaw-making process!

    Eurofenix Spring 2010:Layout 1 8/4/10 14:37 Page 10

  • The INSOL Europe EECC road show rolls into thepicturesque Romanian city ofTimisoara for 7-8 May 2010,the latest in the long tourwhich has taken it rightaround the developing regionsof Europe including last yearshighly successful meeting inDubrovnik.

    This years conference technicalprogramme will focus on thecontinuing efforts to drag theeconomies of the CEE regionout of the worst world recessionfor 80 years and the importantrole that insolvency professionalshave to play in the recovery.

    Our starting point will be asession on the current financialcrisis, the action taken bygovernments in the region,modifications to bankruptcylaws, issues with local bankingsystems and the lessons to belearnt from jurisdictions inWestern Europe and beyond.

    We will have a panel session onrestructuring and turnaround inthe region and another on a

    cross border insolvencyfeaturing Poland, the CzechRepublic and Romania. Anothersession will look at the benefitsof team work, whereprofessionals from a range ofdifferent disciplines will showwhat they can bring to the tableto add to the basic skills ofinsolvency and restructuringexperts.

    We hope to shine a light on thepotential impact of US Chapter11 cases, where the problems ofmulti-national corporates fromfar away across the Atlantic lookcertain to create someunexpected challenges for localpractitioners, as some verydifferent insolvency cultures areforced to find ways of workingtogether.

    Last years Richard TurtonScholar, Yana Hankovich willhonour us with a presentationbased on her experience ofdevelopments in the insolvencyfield in Russia and we areparticularly delighted to welcomeMr Bogdan Olteanu, the Vice

    President of the Central Bank ofRomania as our keynotespeaker.

    We look forward to welcomingyou to this prestigious event inTimisoara and to the valuablecontributions the delegates will

    make to turning this conferenceinto another great success forINSOL Europe as it continues toreach out to share knowledge,experience and skills with theEUs developing countries.

    Spring 2010 11

    News

    EUROPEAN NEWS

    Academic Forum Technical PapersThe Academic Forum ispleased to announce that the series of TechnicalPapers, inaugurated in 2009with volumes collectingpapers from the Leiden andBarcelona Conferences in2008, has now been joined bya further volume representingcontributions at the SussexConference in 2009 entitledInsolvency Law in the UnitedKingdom: The Cork Report at30 Years.

    Papers from the 2009Stockholm AcademicConference The EuropeanInsolvency Regulation: AnUpdate will also be availablelater in the year.

    These and previouspublications in the series arecomplimentary to members ofINSOL Europe on application to [email protected]; non-membersinterested in purchasing copiesmay do so for 20 each.

    INSOL Europe reachesout to Romania INSOL Europe would like to thank the following sponsors at the time of printing for their generous support of our

    6th EECC Conference in Timisoara:

    Supporting the event

    In association with UNPIR

    Main Sponsors

    www.begbiesgn.co.uk www.pluta.net

    Event Sponsors

    www.piperealaw.rowww.cnajmj.fr

    www.hermann-law.com www.pwc.com/ro

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  • BANKRUPTCY TOURISM

    BankruptcyTourism in the UKA debtor is free to move his centre of main interests but how do you ascertain if he has in fact done so?Stephen Baister looks at the issues

    he German humourist, KurtTucholsky, is quoted as havingsaid, Als deutscher Tourist imAusland steht man vor der Frage,ob man sich anstndig benehmenmu oder ob schon deutscheTouristen dagewesen sind1. ManyGerman tourists visit the UK everyyear. Most of them behaveproperly and are welcome. Lesswelcome are the considerablenumbers who come to the UK forthe sole purpose of availingthemselves of our liberalbankruptcy regime2.

    The scale of Germanbankruptcy tourism3 is illustratedby the existence of companies setup to assist German debtors tomove to the UK to seek relief here.On 18 February 2009 MrRegistrar Simmonds wound up inthe public interest4 a companycalled Medicon Limited and anumber of associated companiesincorporated in England butcarrying on business in Berlin.Medicon maintained a websiteand advertised in the Germanpress. The following advertappeared in Die Welt:

    Private insolvency in a foreigncountry. Guaranteed release ofremaining debt after maximum of15 months. Includes ALLobligations, legal recognition inGermany!

    The principles governingjurisdiction in bankruptcy in anEU member state and as a matterof English domestic law are set outin the EC Regulation onInsolvency Proceedings5 and s. 265Insolvency Act 1986. Recital 13 ofthe Regulation provides that adebtors centre of main interestsshould correspond to the placewhere the debtor conducts theadministration of his interests on aregular basis. This definition isnot helpful in practice.

    A debtor is free to move hiscentre of main interests6. Theproblem lies in ascertainingwhether he has done so or whetherhis evidence that his centre ofmain interests is in the UK is asham. The problems that arisemay be illustrated by two casesinvolving German debtors, OfficialReceiver v Eichler and OfficialReceiver v Mitterfellner7.

    12

    T

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  • Spring 2010 13

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  • BANKRUPTCY TOURISM

    14 Spring 2010

    Case 1: Official Receiver v EichlerOn 1 February 2007 a bankruptcyorder was made against Dr Eichleron his own petition. According tohis petition his centre of maininterests was within England andWales and for the greater part ofsix months immediately precedingpresentation he had been residingin Hertfordshire. The affidavitsworn in support of the petitionindicated that he was working inthe UK as a locum consultantearning 500 per month. Hisservices were contracted through aUK company of which he hadbeen a director (he had by thenresigned). He had no significantassets. He had only three Germancreditors totalling 206,700.

    The Official Receiver appliedto the court for directions as towhether or not the bankruptcyorder should have been made onthe basis that the debtors centre ofmain interests was in fact inGermany.

    The Official Receiver reliedon the following matters.1. The debts were incurred

    entirely in Germany and thecreditors were all located there.

    2. The debtor moved to Englandin October 2006 and lived intemporary accommodationprovided in connection with hisemployment.

    3. His locum work was by its verynature temporary, whichpointed again against his centreof main interests being here.

    4. The debtors wife continued tolive in Germany.

    5. The debtors earnings of 500were in reality a fiction. Hisservices were contractedthrough a company of which hehad been a director; his wiferemained a director, and thecompany was taking the benefitof his true earnings, leavingnothing for the Official Receiverto attach by way of incomepayments. The set up was asham to deprive creditors ofmoney they might otherwiseexpect to go towards thepayment of a dividend.

    6. The debtor had owned aproperty in Germany which hadbeen transferred into his wifes

    name; proceedings to investigateand undo the effects of thattransaction, if appropriate,could more conveniently betaken in Germany than fromhere.

    7. The insolvency had arisen as aresult of a judgment givenagainst the debtor in connectionwith his business affairs inGermany.

    8. The insolvency and businessconnection were with Germanyand those factors pointed to thecentre of main interests being inGermany as opposed to here.

    9. The conduct of the insolvencyhere, as opposed to in Germany,could be prejudicial to thecreditors.

    Dr Eichlers submissions were verybrief. He asserted that he hadgenuinely moved to England towork there and remained workingthere. To that extent his Englishaddress was a true address. Themove was not temporary, andthere was no evidence to supportthe contention that it was. It wastrue that his wife remained inGermany, but he spent more timein England in connection with hiswork than he did in Germany. Hedenied that there had been anyimpropriety in the transaction

    transferring his property interest tohis wife. He denied that thearrangements by which his serviceswere contracted were a sham: inaddition to giving him a wage, thecompany paid for hisaccommodation and transport; italso arranged insurance, and therewere other expenses which had tobe covered. He submitted that, incommon with many EU qualifieddoctors, he had come to Englandto work as he was entitled to. Hisbeing in England was nottemporary, as his continuedpresence at the time theapplication was madedemonstrated. He regardedEngland as his centre of maininterests and he was entitled toinvoke the bankruptcy jurisdictionof the courts of this country, whichis what he had done after takingadvice.

    Following Shierson v Vlieland-Boddy the court had little difficultyin concluding that Dr Eichler wasfree to move his centre of maininterests and was not fixed withGermany for all time and for allpurposes. Moreover, the fact thatDr Eichlers debts were all inGermany was not a relevant factor.Even if the location of creditorswas relevant, the EC Regulation

    He denied that thearrangements by

    which his serviceswere contractedwere a sham.

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  • BANKRUPTCY TOURISM

    provides for the recognition ofEnglish insolvency proceedings inGermany and elsewhere in theEU. There was no evidence thatDr Eichlers creditors would beprejudiced. The Official Receiveror any trustee appointed would beobliged to investigate his affairsand realise any assets which maybe available irrespective of theirlocation: geographical conveniencewas not a matter which couldproperly be taken into account.

    Nor was it appropriate to takeinto account whether the basis onwhich Dr Eichler was employedwas a sham. That was a matterwhich could be investigated in anEnglish insolvency moreconveniently than in a Germanone.

    Even if it could be said thatDr Eichlers presence in Englandwere purely temporary that wouldnot necessarily, of itself, prevent hiscentre of main interests from beingthere. There is no authority whichestablishes or even considers anyminimum period of time whicha person must spend in a memberstate before it can be said to havebecome his centre of maininterests, although common sensemight indicate that a few days (oreven a few weeks) would be

    unlikely to suffice because thatwould be at odds with conductingthe administration of onesinterests in a place on a regularbasis (as well as being at oddswith the idea of an habitualresidence)8.

    Accordingly, the courtdeclined to direct the OfficialReceiver to apply to annul thebankruptcy order and made noorder on the application.

    Case 2: Official Receiver v MitterfellnerThe Mitterfellner case (which wasproperly argued by counsel for theparties) was decided largely on thefacts. Mr Mitterfellner had run upbusiness debts in Germany andcame to England in 2007 after thebreakdown of his marriage. Heclaimed to have settled in Hastings.A bankruptcy order was made onhis own petition in the HastingsCounty Court. The OfficialReceiver applied to annul orrescind the order9 on the basis thatMr Mitterfellners centre of maininterests was not in the UK.

    Although there were facts infavour of Mr Mitterfellnerscontention (he claimed to havelived at several places in Hastings,

    which he clearly knew, he had abank account in Brighton and anational insurance number) therewere considerable indications thathe had not moved to Hastings (thepurchase of return airline ticketsbetween Germany and Englandfrom a travel agent in Germanywhere in several cases he startedhis return trip, notification to theGerman authorities that he waschanging residence to live inIreland and an offer of a job inDerby that was shrouded inmystery).

    The court annulled thebankruptcy order on the basis thatthe debtors centre of maininterests was not in the UK and onthe additional basis that thepetition and affidavit presented tothe county court contained false ormisleading information.

    More cases in the same veinawait a hearing.

    Footnotes1. As a German tourist abroad one faces the

    question whether one has to behaveproperly or whether German tourists havebeen there already.

    2. The principal attractions appear to beswift discharge in a year or even less (s.279 Insolvency Act 1986) and release fromall bankruptcy debts (s. 281(1) InsolvencyAct 1986).

    3. The Insolvency Service estimates that inthe 18 month period up to January 2010approximately 150 bankruptcy orderswere made on the petitions of foreignnationals resident in the UK for less than12 months. The majority were eitherGerman or Austrian.

    4. See s. 124A Insolvency Act 1986.

    5. No 1346/2000 (OJ L 160, 30 June 2000).

    6. See Shierson v Vlieland-Boddy [2005]EWCA Civ 974 and Re Staubitz-Schreiber[2006] ECR I-701.

    7. Respectively reported at [2007] BPIR1636 and [2009] BPIR 1075. I heard bothcases as well as a number of other similarcases which are unreported as they wereuncontested.

    8. See on this point Re Ci4net.com Inc[2004] EWCH 1941 (Ch) in which HHJLangan QC held that a centre of maininterests must have an element ofpermanence.

    9. See ss. 282(1)(a) and 375(1) Insolvency Act1986.

    Spring 2010 15

    STEPHEN BAISTERChief Bankruptcy Registrar,

    Royal Courts of Justice, London

    There is no authoritywhich establishes

    any minimumperiod of time whicha person must spend

    in a member statebefore it can be saidto have become his

    centre of maininterests

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  • DUBAI WORLD

    Dubai World: The new restructuringand insolvency regime

    Jane Flournoy reports on how insolvency laws of the UK and the US are influencing decisions in Dubai

    O n 25 November 2009 theGovernment of Dubaiannounced that itintended to ask the financialcreditors of Dubai World (aGovernment of Dubai holdingcompany) and Nakheel (masterdeveloper and subsidiary of DubaiWorld), to agree to a standstill ontheir debts and to extendmaturities until at least 30 May2010. The one pageannouncement caused muchconcern amongst creditors andcame as a surprise to most giventhe various assurances that hadbeen made only a few weeksearlier that all debts and liabilities,including the Nakheel Sukuk(amounting to US$4.1 billion)which was due to be repaid on 14December 2009, would be met.

    Such concerns resulted in legalpractitioners throughout theUnited Arab Emirates (the UAE)racing to the books in a desperateattempt to try and find cases wherethe UAEs Federal insolvency andrestructuring laws1 (the FederalLaws) had been tested only to finda notable absence of anysignificant precedent.

    UAE Federal insolvencyand restructuring regimeThe Federal Laws currently do not contain any provisionsencompassing rescue orrestructuring proceedings. They do not for example includeprocedures similar to those of aUK style administration or USchapter 11 process insteadproviding for liquidation(applicable to companies with themain objective of terminating thecompany as a corporate entity)and bankruptcy (applicable to bothcompanies and sole traders with

    the main objective of dischargingthe trader from its debt andliabilities). There is also the abilityfor a trader to enter into acomposition with its creditorsalthough as with insolvency casesin general, this is a rareoccurrence.

    Partly due to the absence ofprotection offered to companieswithin the Federal Laws that wouldallow them to restructure on agoing-concern basis, companies inthe UAE have historicallypreferred to carry out restructuringon an informal basis and outsidethe legislation. As such, the FederalLaws have not really been testedby any major corporate insolvencyand although reports by theFederal Government confirm thatthe Federal Laws will be amended,any form of amendment wouldnot have come in time in order todeal with the current crisis. Therewas therefore a great deal ofuncertainty regarding how thesituation would be resolved.

    The Decree The events of 14 December 2009went some way towards resolvingthat uncertainty and easing somecreditor concern.

    Following a US$10 billionfinance injection from theGovernment of Abu Dhabi, anannouncement was made by theGovernment of Dubai that theNakheel Sukuk holders would berepaid. In addition, theGovernment of Dubai announcedthat Decree No. 57 of 2009Establishing a Tribunal to Decidethe Disputes Related to theSettlement of the FinancialPosition of Dubai World and itsSubsidiaries (the Decree) hadbeen issued. The effect of the

    Decree was to create a new legalframework based uponinternationally accepted standardsfor transparency and creditorprotection applicable to DubaiWorld and its subsidiaries (theGroup) which meant taking theGroup outside the insolvencyprocesses prescribed under theFederal Laws.

    Why was the Decree needed?Dubai World itself was establishedby way of special decree by theGovernment of Dubai in 2006.Although a common method ofincorporation for entities eitherassociated with or owned by theFederal Government or any one ofthe emirates, it meant that theposition was unclear as to whetherFederal Laws would apply to it.

    Although it is possible that acreditor may question theconstitutional status of the Decree,the general consensus of opinionso far has been that the Decree, byproviding an alternative legalframework designed to activelydeal with any future restructuring,was welcomed.

    The LawThe Decree drew heavily from theinsolvency laws of the UK and theUnited States and adopted theinsolvency laws of the DubaiInternational Financial Centre(DIFC) as its basic frameworkrather than the Federal Laws. Itwas also passed in English. Both ofthese moves were interpreted asthe Government of Dubai wantingto use a system representinginternational best practice thatwould be more familiar tointernational creditors in particularthereby easing concern.

    JANE FLOURNOYAssociate, Denton Wilde Sapte

    LLP (Abu Dhabi)

    The Federal Lawscurrently do not

    contain anyprovisions

    encompassingrescue or

    restructuringproceedings.

    16 Spring 2010

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  • DUBAI WORLD

    The Decree did however makecertain modifications to the DIFCinsolvency laws for the purposes ofdealing with the Group by way ofan attached schedule (theSchedule). For example, theTribunal will not be able toappoint a receiver over the assetsof the Group or an administrativereceiver and the Group and itsdirectors are excluded from theprovisions relating to WrongfulTrading.

    The TribunalThe Decree established a newtribunal (the Tribunal) which wasempowered to deal exclusively withany demands and claims madeagainst the Group and also tosupervise any future restructuringor insolvency proceedings. It is not

    yet clear whether in practice theDecree will operate in order toprohibit the UAE Courts fromdealing with all claims i.e. includingcontractual claims, made againstthe Group or if the Tribunalsexclusivity will be restricted tothose claims associated with therestructuring. It is doubtful whethersuch a wide interpretation hadbeen the intention.

    Chaired by Sir AnthonyEvans, a former judge of the Courtof Appeal of England & Wales andthe current Chief Justice of theDIFC Court, the Tribunal alsoconsists of Michael Hwang, thecurrent Deputy Chief Justice of theDIFC Court and former JudicialCommissioner of the SupremeCourt of Singapore, and Sir JohnChadwick, another formermember of the Court of Appeal of

    England & Wales and currentDIFC judge. Again, theconsiderable experience of themembers of the Tribunal indealing with insolvency matterstogether with the benefit of anappreciation of local custom andpractice derived directly by themfrom working within the UAE alsowent some way to easing creditorconcern.

    The Tribunal may issueinterim orders includinginjunctions, although the ability toenforce injunctions granted underexisting UAE law is uncertain giventhat the remedy is only applied invery limited circumstances in theUAE. It is also unclear whetherenforcement of a foreign judgmentwould be subject to the Decree andif the Tribunal would have anyjurisdiction to enforce it.

    The VoluntaryArrangement The effect of the Schedule was tointroduce a new voluntaryarrangement procedure. In orderfor the Group company to enterinto a voluntary arrangement, theDecree provided that the entitymust put proposals to its creditorsthat, in addition to being approvedby certain majorities of thecreditors, must also be sanctionedby the Tribunal.

    One of the key features of thevoluntary arrangement procedureis that upon an entity notifying theTribunal that it intends to makeproposals for a voluntaryarrangement to its creditors anautomatic moratorium will takeeffect. No notice to creditors aheadof the notification being made tothe Tribunal is required althoughbefore the notification is made, thedebtor is required to appoint aleading restructuring practitioneras nominee. The moratoriumapplies to both secured andunsecured creditors alike andextends to all assets of the entityregardless of where they arelocated. Accordingly therefore, itwould appear that a creditor maybe prevented, without notice, frombringing claims or enforcing itssecurity wherever in the world itmay look to do so.

    A unique feature of theprocedure is that upon notice tothe creditors, the Tribunal maychoose to extend the moratoriumto an affiliate of the debtor orother entity if it is equitable to doso, even if that other entity is notitself seeking a voluntaryarrangement.

    Another feature of themoratorium that both surprisedinternational practitioners andcaused concern for creditors wasthat creditors are prohibited fromexercising any form of set-offrights once the moratorium is inplace. It will be interesting to seewhether such a prohibition willprove workable in practice.

    ConclusionAlthough the appointment of anexperienced tribunal to overseeand administer an insolvencyframework is to be welcomed,there is clearly still a great deal ofuncertainty regarding how someof the provisions contained withinthe Decree will apply in practiceand also what the precise scope ofthe Tribunals jurisdiction will be.At the time of this writing howeverno Group entity has entered avoluntary arrangementproceeding. Such questionstherefore could still proveredundant as it is possible the truevalue of the Decree will be thedisciplining effect it has on boththe Group and its creditors in theirapproach to the discussions. Asregards informal restructuringbeing the preferred practice withinthe UAE it would appear that itmay be a case of old habits diehard.

    Footnotes1. Primarily found in the UAE Commercial

    Companies law (promulgated underFederal Law No 8 of 1984) and the UAECommercial Code (promulgated underUAE Federal Law No 18 of 1993).

    Spring 2010 17

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  • CROSS-BORDER

    Cross-border recognition under the Common Law

    Peter Hayden reviews some interesting cases where common law decisions have been made in jurisdictions that have not adopted the UNCITRAL Model Law on Cross-Border Insolvency

    IntroductionAs the fall-out from the creditcrunch continues and insolvencyproceedings gather pace, courtdecisions on cross-borderrecognition are coming thick andfast. Whilst many common lawjurisdictions have adopted theUNCITRAL Model Law onCross-Border Insolvency (theModel Law), many have not,and still rely on the common lawto address these issues.

    This article reviews the keycommon law decisions, includingthe recent judgment of Lewison Jin In the matter of StanfordInternational Bank Limited [2009]EWHC 1441 (Ch). In particular,it considers the rationaleunderlying recognition and the testto be applied to determine theplace of the principal liquidation.The Stanford decision is currentlybeing appealed to the Court ofAppeal, so further developmentsare imminent.

    Cambridge GasCambridge Gas TransportationCorpn v Official Committee ofUnsecured Creditors of NavigatorHoldings plc and others [2007] 1AC 508 was the first significantrecent case to provide clearguidance on the common lawprinciples that should be applied todetermine whether foreigninsolvency proceedings should berecognised. The issue in that casewas whether the Manx HighCourt had jurisdiction to assist theUS Federal Bankruptcy Court inrelation to a reorganisation underChapter 11 of the US BankruptcyCode. The Privy Council referredto the English common lawstraditional view that fairnessbetween creditors requires that,

    ideally, bankruptcy proceedingsshould have universal application.Lord Hoffmann said, Thereshould be a single bankruptcy inwhich all creditors are entitled andrequired to prove. No one shouldhave an advantage because hehappens to live in a jurisdictionwhere more of the assets or fewer ofthe creditors are situated. ThePrivy Council also recognised that,whilst universality of bankruptcyhad long been an aspiration ofEnglish law, it has not always beenfully achieved. However, it stressedthat the underlying principle wasgiven effect by recognising theperson empowered under theforeign bankruptcy law to act onbehalf of an insolvent company asbeing entitled to do so in England.

    Accordingly, the Privy Councilheld that the Manx Court hadjurisdiction to assist and could dowhatever it could have done in thecase of a domestic insolvency. Itnoted that the purpose ofrecognition of the foreign officeholder was to avoid parallelinsolvency proceedings. Althoughthe Privy Council did not dwell onthe point, the decision allowedcompanies incorporated in the Isleof Man to be subject to insolvencyproceedings in the US. The lastpoint is particularly significantbecause the place of incorporationhad previously generally beenregarded as the seat of theprincipal liquidation.

    HIHCross-border insolvency issuescame before the House of Lordsshortly after the Cambridge Gascase in Re HIH Casualty andGeneral Insurance Ltd [2008] 1WLR 852. The issue in that casewas whether the discretion to remit

    English assets to an Australianliquidator arose under thecommon law or solely understatute. Lords Scott and Neubergerfound that the discretion to orderremission arose only under statute(although it has since been said inRe Swissair [2009] EWHC 2099that their comments were notintended to be general commentsbut rather were restricted to thefacts of the case). In contrast,Lords Hoffmann and Walker heldthat the discretion also arose underthe inherent common law powersof the court. Lord Philipsexpressed no opinion on whetherthe powers arose under thecommon law but expresslyendorsed the principle ofuniversalism. Although the split inthe House of Lords in relation tothe common law position did notmatter in the context of the HIHcase, given the importance of thecommon law in other jurisdictionsit is somewhat disappointing thatthe opportunity was not taken toclarify matters.

    Lord Hoffmann referred backto the Cambridge Gas case and theprinciple of the universality ofbankruptcy. His Lordship thenwent further, saying The principleof (modified) universalism hasbeen the golden thread runningthrough English cross-borderinsolvency law since the 18thcentury. That principle requiresthat English courts should, so faras is consistent with justice and UKpublic policy, co-operate with thecourts in the country of theprincipal liquidation to ensure thatall the companys assets aredistributed to its creditors under asingle system of distribution. LordHoffmann acknowledged that insome cases there may be doubtabout how to determine which

    PETER HAYDENMourant du Feu & Jeune,

    Cayman Islands

    Court decisions on cross-borderrecognition are

    coming thick and fast

    18 Spring 2010

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  • CROSS-BORDER

    jurisdiction should be regarded asthe seat of the principalliquidation. His Lordship notedthat the place of the companysdomicile may not be the mostappropriate jurisdiction andreferred to the COMI test appliedunder the UNCITRAL ModelLaw. However, he did notelaborate on the test that should beapplied to determine thesematters.

    Cayman Islands and BermudaThe principle of modifieduniversalism was subsequentlyaccepted in both the CaymanIslands and Bermuda.

    In re Lancelot Investors Fund,Ltd (currently unreported), theGrand Court of the CaymanIslands had to determine whetherUS bankruptcy proceedings shouldbe recognised in the CaymanIslands or whether a Caymanliquidator should be appointedover a hedge fund that had lostalmost its entire investment as aresult of the Petters fraud in theUS. The Grand Court held that,as a general principle, bankruptcyshould be unitary and universal. Itexpressly adopted and followed theCambridge Gas and HIH cases.The court did not elaborate on thetest to be applied at common lawto determine the place of theprincipal liquidation because itheld that, whether the commonlaw test or the Model Law test (ofcentre of main interests(COMI)) was applied, the placeof the principal liquidation in thecase before it was clearly the US.In assessing matters from acommon law perspective, itappears to have had regard to allthe circumstances of the case toascertain the most appropriatejurisdiction for the principalliquidation.

    Likewise, In re FoundingPartners Global Fund Ltd, theSupreme Court of Bermudaapplied Cambridge Gas inrecognising the appointment ofCayman Islands provisionalliquidators, and affording themsuch powers as would be availableto a Bermudian liquidator underthe Bermuda Companies Act

    1981. Again, the court did notexpressly address the issue ofwhich test should be applied todetermine the place of theprincipal liquidation, but notedthat public policy issues may arisein relation to a Bermudiancompany being liquidatedelsewhere.

    StanfordIn Stanford, an English courtdetermined competing applicationsfor recognition by a US receiverand Antiguan liquidators byapplying the UK Cross-BorderInsolvency Regulations 2006 (theRegulations), which give effect tothe Model Law. This involved theapplication of the COMI test but,since it held that the Regulationssupplemented rather thanextinguished the common law, thecourt went on to consider thecommon law position.

    As has already been widelyreported, the court found that theUKs implementation of theModel Law differed from that ofthe USA. The key differencerelated to the presumption that thecompanys registered office was thelocation of the principal liquidation(or foreign main proceeding,using the terminology adopted bythe Model Law). The court heldthat in the UK the presumptionwas a true presumption because itapplied in the absence of proof tothe contrary, so that the burden lieson the party seeking to rebut it. Bycontrast, the court thought that inthe US the presumption onlyapplied in the absence of evidenceto the contrary and, according tothe US authorities, the registeredoffice has no special evidentiaryvalue. The English court did nottherefore follow the three wellknown US decisions where the UScourts refused to recogniseCayman insolvency proceedings asthe principal liquidation (In reSPhinX Ltd, 371 B.R. 10(S.D.N.Y. 2007), In re Basis YieldAlpha Fund, 381 B.R. 37 (Bankr.S.D.N.Y. 2008) and In re BearStearns High-Grade StructuredCredit Strategies Master Fund, Ltd374 B.R. 122 (Bankr. S.D.N.Y.2007)).

    As regards the common law,the court accepted and adoptedthe principle of universalism as setout in Cambridge Gas. It was heldthat, if liquidators had beenproperly appointed in the place ofincorporation with the power andduty to collect assets on behalf ofall creditors, then, barringexceptional circumstances, thoseliquidators should be left to get onwith the job without outsideinterference from others. Thismeant that the Antiguanliquidators appointment overStanford International BankLimited was recognised, ratherthan that of the competing USreceiver.

    ConclusionsThe principal of universalism isincreasingly widely acknowledgedand recognised as the appropriateapproach under the common law,and there are obvious advantagesfor creditors in having a singlebankruptcy proceeding whichdeals with all claims.

    However, the test to be appliedat common law to determinewhere the principal liquidationshould be is not yet settled.Although some of the earlier casessuggest that the place ofincorporation may not be the mostappropriate jurisdiction of theprincipal liquidation, but Stanfordsuggests that there must beexceptional circumstances beforethe court will be persuaded torefuse to recognise theappointment of liquidatorsproperly appointed in the place ofincorporation. An analysis of thefacts considered in the Stanfordjudgment is beyond the scope ofthis article, but they provide someguidance on the matters the courtis likely to regard as beingsignificant. Nevertheless, it seemsthat the bar is now being set at ahigh level for a party arguingagainst the recognition ofliquidators appointed in the placeof incorporation.

    The bar is now being set at a high

    level for a partyarguing against the

    recognition ofliquidators

    Spring 2010 19

    This article was first publishedin INSOL World

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  • ACADEMIC FORUM

    Academic Forum ConferencePreviewsLeiden & Vienna

    Leiden, 1-2 July 2010

    The Academic Forum isorganising its third half-yearevent on 1-2 July 2010 at theFaculty of Law of theUniversity of Leiden, incollaboration with the Centrefor European Company Law,which is a research institute ofthe Universities of Maastricht,Utrecht and Leiden.

    It is the Academic Forums fifthconference since 2008, the first ofwhich also took place in thepremises of the Leiden LawSchool. The programme of theJoint Insolvency Conference, titledTowards a New EU frameworkfor Crisis Management in theBanking Sector is most promisingin at least two respects. Thefinancial crisis has highlighted theimportance of putting into placeeffective cross-borderarrangements to handle bankingcrises. There have been a numberof high profile banking failuresover the past 18 months (Fortis,Lehman Brothers, Icelandicbanks), which have revealedserious shortcomings in theexisting arrangements. Accordingto the European Commissionsproposals, a new legal frameworkmust be put in place to equip theauthorities with the right tools andprovide legal certainty for thehandling of cross-border bankingfailures, in ways that minimizecosts to taxpayers and allow eventhe largest banks to fail withoutdamaging overall financial stability.

    A broad ranging approach tothe complex and interlinked issuessurrounding crisis managementhas been suggested: earlyintervention, bank resolution(including consideration of the

    extension to cross-border bankinggroups of the remit of Directive2001/24/EC on theReorganisation and Winding up ofCredit Institutions) andinsolvency, with a bindingframework for cooperation and theexchange of information betweencourts and insolvency practitionersresponsible for proceedingsrelating to affiliated entities in abanking group. These themes areof tremendous importance forbanks and their management, forthe insolvency profession and forscholars, where the limits ofprinciples of corporate law andinsolvency law will be tested.

    The topics will be discussed byacademics and practitioners fromover ten jurisdictions, including theCzech Republic, the Netherlands,Luxembourg, France, Germany,Norway, the United Kingdom andthe United States.

    Vienna, 13-14 October 2010

    Preparations are nearlycomplete for the AcademicForums Annual Conference inVienna. The meeting at theIntercontinental Hotel,scheduled over the 2 days justprior to the main conference(13-14 October 2010), hasbeen able to attract speakersrepresenting some eightjurisdictions within Europeand elsewhere.

    This early interest has enabled thedevelopment of two major themesfor the conference: CorporateGroups and Insolvency andInsolvency Case Studies, bothvery topical subjects indeed withthe latter focusing especially on theproblems of large-scaleinsolvencies. There will also be asession combining the two otherthemes of the Call for Papers

    PAUL OMAR Senior Lecturer at the Sussex

    Law School and Secretary of theINSOL Europe Academic Forum

    Topics will bediscussed by

    academics andpractitioners from

    over ten jurisdictions.

    20 Spring 2010

    ACADEMIC FORUM INSOL Europe

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  • ACADEMIC FORUM

    issued in February: Arbitrationand Insolvency and BankingRegulation.

    Some of the confirmedspeakers in the sessions onCorporate Groups andInsolvency include AlexanderDaehnert (Sussex), Dr JessicaSchmidt (Jena), ProfessorGheorghe Piperea (Bucharest),Alexandra Kastrinou(Westminster), Helen Sevenoaks(British Columbia) and MyriamMailly (Kent). The session onInsolvency Case Studies willinclude contributions by Dr DavidHahn (Bar-Ilan, Tel Aviv) and DrTomas Richter (Charles UniversityPrague), while the combinedsession on Arbitration andInsolvency and BankingRegulation will feature papers byCecilia Carrara (LUISS Rome)and Luminita Tuleasca(Romanian-American UniversityBucharest).

    Following a successful venturein Stockholm 2009, place is also

    being given to some of themembers of the Young AcademicsNetwork (YAN) to present paperson their recent research. There willalso be an update on the soon tobe completed ALI-III Project onGlobal Principles in InsolvencyLaw by the joint project chair,Professor Bob Wessels (Leiden).Furthermore, as part of theconference schedule, there will alsobe a report back on AcademicForum activities in 2009-2010.

    Members of the Managementand Supervisory Boards present atthe congress will also meet to planactivities for 2010-2011 andidentify themes for a possibleSpring 2011 Event as well as theAnnual Conference in Venice,Italy, later that year. Expressions ofinterest and ideas for thedevelopment of topics for theseevents are also welcome frommembers of the academic andpractitioner communities.

    The social aspect ofproceedings will see the delegates

    attend a dinner on 13 October,usually a very convivial occasion,thanks to Professor Bob Wesselsand his repertoire of amusingdining customs. At time of writing,travel and research grants arebeing advertised to enable youngerscholars to carry out researchand/or attend proceedings, all ofwhich have been generouslysponsored by Edwin Coe LLP.Book prizes for outstandingcontributions to insolvency lawand literature have also beenannounced. The Academic Forumis also pleased to anticipate thepresentation of the third EdwinCoe lecture at the ViennaConference, with speaker details tobe announced at a later date.

    Further InformationDetails of the Leiden Conferenceand the Vienna AnnualConference will be published atthe Academic Forum website at:, with

    on-line registration for bothconferences being possible.Information on the ViennaConference will also be included inthe registration brochure for themain INSOL Europe conference.Further information about thetravel and research grants forscholars as well as on the work ofthe Academic Forum can beobtained via the Academic Forumwebsite or from the Secretary viae-mail at: .

    Spring 2010 21

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  • ROUNDTABLE DISCUSSION

    Roundtable discussion in Russia:Investigating the affairs of an insolvent debtor

    Daniel F. Fritz, INSOL Europes Russian Desk, reports on the roundtable discussion jointly organised by theMinistry of Economic Development of the Russian Federation, European Bank for Reconstruction andDevelopment, Russian Union of SROs of Insolvency Administrators, INSOL International and INSOL Europe

    O rganised by the EuropeanBank for Reconstructionand Development, incooperation with INSOLInternational and INSOL Europe,a round table discussion took placeon 9 February 2010 at the RussianMinistry of EconomicDevelopment in Moscow, in whichhigh-ranking representatives of theRussian Ministry of EconomicDevelopment, of the Russian HighCourt for Commercial Mattersand the various associations ofinsolvency administrators (Self-regulating Organisations ofInsolvency Administrators,SROs) took part.

    From the start it can be saidthat this event, in which interestedRussian decision makers had theopportunity to exchangeinformation at length withEuropean international insolvencylaw experts, proved to be acomplete success. In particular, itbecame clear that the Russianlegislator, represented by theMinistry of EconomicDevelopment, is very interested incontinuously improving theRussian insolvency system bymeans of a constant exchange ofinformation with internationalorganisations and experts ininsolvency law.

    Expert participantsEBRD as the organiser had giventhe Russian hosts the opportunityof bringing such experts fromvarious jurisdictions to one jointroundtable, who in the opinionof the Russian side were ofparticular interest to them. To thiseffect, Sumant Batra was not onlyinvited to participate in hiscapacity as the Chairman ofINSOL International, but in

    particular as an expert in Indianinsolvency law. The Europeanparticipants were Sijmen de Ranitz(Resor N. V., Netherlands),Gordon Stewart (Allen & Overy,UK), Steven Speed (ChiefExecutive Insolvency Service, UK),Daniel Fritz, the author of thisarticle (HERMANN RWS, GER),and, as permanent consultants tothe EBRD Neil Cooper (UK),Melissa Burgess, Alexej Yukhnin(RF), and Professor RonaldHarmer (AUS). Furthermore,Mahesch Uttamchandani hadbeen invited to participate in theround table for the World Bank.

    The Russian side wasrepresented by delegates from all-important areas associated withinsolvency law. The participantswere, among others: INSOLEurope member Arthur Trapitsynas the Vice President of theRussian Union of SROs;Insolvency Administrator andChairman of the SRO Mercurii.The other Russian delegatesrepresented the Russian HighCourt for Commercial Matters(Oleg Zaytsev), insolvencyconsultants such as DmitriiStepanov (attorney-at-law) andAlexander Kolchin (attorney-at-law) and other organisations. Theroundtable was opened andconducted by the hosts at theRussian Ministry of EconomicDevelopment, Ivan Oskolkov(Director, Corporate GovernmentDepartment) and DmitriiSkripichnikov, (Deputy DirectorCorporate GovernmentDepartment).

    Detailed preparationIt was in particular the highlyprofessional and detailedexaminations of the EBRD team

    in the run-up to the conferencewhich showed that in Russianinsolvency practice, obtaininginformation in case of acompanys insolvency is a verydifficult but also very importanttopic. During the preparation ofthe event, Russian insolvencyjudges and insolvencyadministrators, but also consultantsinvolved in insolvency cases, inparticular attorneys-at-law, wereprovided with questionnaires inwhich they were able to givedetailed information regardingtheir experience with obtaininginformation in insolvencyproceedings. The results of thissurvey were then summarised in areport which was handed over tothe Russian Ministry for EconomicDevelopment as the institutionresponsible for insolvency law.

    The focus points listed therewere also addressed by the variousshort presentations given by theparticipants of the round table,which were followed in each caseby very lively, interesting, but alsodetailed discussions. The topics onthe one hand related to a directorsduties to disclose information to aninsolvency administrator; on theother hand the discussion referredto whether information could alsobe obtained from third parties, inparticular government authorities,and how the assets of aninsolvency debtor could be mosteffectively secured on the basis ofsuch information. During thesecond part of the roundtable,various concepts were presented inorder to effectively improve, incompliance with applicable law,the course of action taken byinsolvency administrators in orderto obtain information.

    DANIEL F. FRITZHERMANN, Frankfurt am Main

    EBRD as theorganiser had giventhe Russian hosts the opportunity of

    bringing such expertsfrom various

    jurisdictions to onejoint roundtable.

    22 Spring 2010

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  • ROUNDTABLE DISCUSSION

    Regulatory bodiesAs the third and last part, the roleof the insolvency professionalregulatory bodies in various othercountries, such as India and theUK was discussed, but also thecurrent situation in Russia. Thiswas then followed by theconclusions of the EBRDorganisers (Frederique Dahan andMichel Nussbaumer) and theRussian Ministry of EconomicDevelopment (DmitriiSkripichnikov). The Russianparticipants especially stressed thatthe results of the examination,which showed some weaknesses inthe Russian insolvency system, areconsidered as a very welcome andrequested criticism, and that theywould be glad to take theopportunity to further anchor theconcept of best practice in theRussian insolvency sector, bymeans of an exchange ofinformation with internationalinsolvency experts.

    Theory in practiceThe study, but also the reportsgiven by the Russian insolvencypractitioners, showed that whilstthere are various possibilities ofobtaining information underRussian insolvency law in theory,the insolvency courts frequentlyhandle applications filed byinsolvency administrators veryhesitantly or reject them altogetherin practice. Russian insolvencyadministrators also often lack thenecessary formalacknowledgement by theauthorities. For this reason, thecontributions made by the English,Dutch and German expertsattracted particular attention, asthey showed that the insolvencyadministrators in thesejurisdictions have very effectivemeans at their disposal, such asdetention of the director, in orderto obtain the necessaryinformation.

    For the Russian side, it wasalso interesting to hear thatinsolvency administrators in thepast had not had the bestreputation in Europe either, buthave been able to establish theirgood reputation step by step, by

    means of continuous professionalhandling of insolvency cases, therescuing of companies and thus bybuilding up trust amongst allshareholders in the businesscommunity. In this context, ethicalissues were in the foreground ofthe discussion, and it was pointedout that the acknowledgement ofan insolvency administrator is notonly a matter of the legalframework conditions and theinsolvency judges qualification,but also depends on the successachieved by the insolvencyadministrator for the benefit of thecompanys creditors and thereforefor the benefit of society at large.

    The roundtable discussions,which were limited to amanageable circle of 40participants, then came to an endat a drinks reception during whichthe exciting topics of the day wereonce more discussed in smallerand more personal circles. Here,too, the Russian colleagues stressedtheir strong interest in the practicalsolution concepts developed inEurope.

    Invited PractitionersOn the second day, theinternational guests were oncemore given the opportunity ofgiving their short presentation infront of a larger auditorium. It wasin particular those insolvencypractitioners who had taken partin the EBRD survey who had beeninvited to Moscow to listen to thepresentations given by theinternational experts and to askquestions during the followingdiscussions. The Russianinsolvency practitioners once moreshowed great interest in theefficient methods of obtaininginformation in Europe, and in anefficient handling of theproceedings in the interests of thecreditors.

    Positive developmentCompared with otherinternational events related toRussian insolvency law, it becameclear that the Russian insolvencysystem has been showing a verypositive development. Whilstduring earlier debates the focus still

    was on issues of the selection andappointment of insolvencyadministrators, the interests of theRussian insolvency community hasshifted more and more towards thetopic of handling the proceedingsas efficiently as possible and in theinterests of the creditors. It is inthis context that the summary byIvan Oskolow, Director of theCorporate GovernmentDepartments of the Ministry ofEconomic Development is to beunderstood, who once moredescribed in an open and thereforeimpressive manner that modernRussian insolvency law can lookback on a mere 10 years oftradition only. This becomesparticularly clear when consideringthe fact that for many legal pointsin dispute a prevailing opinionhas not yet been developed andstanding court practice has not yetbeen established. The RussianMinistry of EconomicDevelopment, but also therepresentatives of the RussianHigh Court for CommercialMatters, therefore see it as theirtask to address these issues and tocontinuously improve the Russianinsolvency system, also through theexchange of information withinternational organisations such asEBRD, INSOL International andINSOL Europe, by means of acontinuous exchange of know-how.

    Modern Russianinsolvency law

    can look back on amere 10 years of

    tradition only.

    Spring 2010 23

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  • RUSSIA

    Turnaround Russia

    Artur Trapitsyn reports on proposed amendments aimed at increasing the use of turnaround procedures

    Although the Russian Law on Insolvency (Bankruptcy)contains provisions on two so-called turnaroundprocedures financialrehabilitation and externalmanagement(administration), they arerarely used in practice.

    In 2008 out of 27,032insolvency procedures introducedby the courts there have been 48financial rehabilitation proceduresand 579 external management(administration) procedures.Figures for the first half of 2009are similar. Out of the total of16,312 procedures there havebeen 25 financial rehabilitationprocedures and 395 externalmanagement (administration)procedures, which means thatonly about 3% of all theprocedures introduced have beenturnaround procedures.

    Undoubtedly, procedures likefinancial rehabilitation cannot beused in every case. The debtormight be unable to reach anagreement with his creditors.There might be no third partieswilling to save the company as agoing concern, or such thirdparties resources might not besufficient to pay off the distressedcompanys debts.

    Failings of the current legislationStill we believe there are anumber of serious issueshindering effective use ofturnaround procedures in Russia,that the current legislation fails toaddress.

    For example, the Law doesnot provide the necessaryprotection to the guarantor in the

    financial rehabilitation procedure.The guarantor is responsible forthe performance by the debtor ofhis obligations and incurs civilliability in case of the debtorsnon-performance or insufficientperformance. Where the meetingof creditors decides to move to adifferent insolvency procedure,the guarantor has no preferenceover other creditors.

    There is also a serious issuecaused by the Law on Insolvencyinterlinking conditions ofrestructuring of overduemandatory payments with therequirements of the Tax Code ofthe Russian Federation.

    The Tax Code envisages thatdelay or extension in relation tounpaid taxes should not exceedone year, which, taking intoaccount the maximum period offinancial rehabilitation, is clearlynot enough. Extension for aperiod in excess of one year butnot exceeding three years canonly be granted by theGovernment of the RussianFederation. Adoption of such adecision within the limited timeframe of supervision procedure ishighly unlikely.

    The way to remove theobstacles imposed by the TaxCode is for a third party topurchase such debts from thestate. In accordance with thecurrent edition of the Law onInsolvency adopted in 2008 thiscan be done at any stage in theinsolvency proceedings.

    Proposed draft lawRecently the Ministry ofEconomic Development hasproposed a new draft law, whichshould lead to a more extensiveuse of financial rehabilitation

    procedure in insolvencyproceedings.

    The draft introduces anumber of new provisions. Theiranalysis shows similarity betweenthe Russian and internationalapproaches to the effectiveimplementation of turnaroundprocedures.

    For example, one of the mostimportant principles outlined byinternational experts is theprinciple of preferentialrepayment of funds used tofinance a turnaround procedure.The current Law on Insolvency(Bankruptcy) does not have such aprovision which is considered oneof the main reasons for the rareuse of the financial rehabilitationprocedure. The new draft lawprovides for preferentialrepayment of such funds, but onlywhere they are made availablewith the prior consent ofcreditors.

    Draft law provisions

    Some of the other provisions ofthe draft law are as follows. The debtor has a right to

    initiate financial rehabilitationprocedure.

    The debtor and creditors havea right to enter into a debtsettlement agreement prior tocommencement of insolvencyproceedings. Such anagreement regulates the waythe parties exercise theirrespective rights including thecreditors right to recover theamounts due and the debtorsright to manage his assets.

    The financial rehabilitationprocedure is introduced forthree years. If extended, themaximum period cannotexceed five years.

    Where a debtor petitions the

    ARTUR TRAPITSYNChairman of the Board of the

    Partnership NP SOAU TPP RF and Deputy Chairman of the

    Board of the Russian Union of Self-Regulated Organisations of

    Insolvency Practitioners

    The Law does not provide the

    necessary protectionto the guarantor in

    the financialrehabilitationprocedure.

    24 Spring 2010

    Eurofenix Spring 2010:Layout 1 8/4/10 14:38 Page 24

  • RUSSIA

    court to introduce financialrehabilitation, supervisionprocedure is not introduced,thus shortening the total lengthof insolvency proceedings.Analysis of the financialsituation of the debtor iscarried out within the financialrehabilitation procedure.

    Together with the petition, thedebtor must submit to the courta confidential report outlininghis financial situation.

    The debtor must submit to thecourt a financial rehabilitationplan approved by the creditorsmeeting, and envisaging fullrepayment of all debts inaccordance with an agreedschedule.

    The creditors claims can bedivided into different classes.

    New definitions

    The draft law also introduces anumber of new definitions. Group of companies: two or

    more legal entities controlled

    by one member of the group. Person under the debtors

    control: a person who is underan obligation to comply withthe orders issued by the debtoror whose actions can beinfluenced by the debtor insome other way.

    Controlling member of thegroup: a person or entity thatis exercising control in relationto the debtor member of thegroup.

    The Draft Law deals with thespecific issues of the insolvency ofmembers of groups of companies.For example, a single financialrehabilitation procedure isintroduced in relation to alldebtors members of one groupof companies. It is proposed thatinsolvency proceedings must beinitiated in relation to not just thedebtor company that has beenstripped of its assets, but also thecompanies directly or indirectlyconnected to the debtor.

    ConclusionThe draft law is more pro-debtorwith a clear emphasis on financialrehabilitation. The onlycontroversial development is theproposed increase of the totalperiod of financial rehabilitationand external management to fiveyears. Though it might increasethe chances of saving distressedcompanies, it may also lead to awidespread insolvency of creditinstitutions thus triggering a newwave of financial crisis.

    It may also lead to a widespread

    insolvency of creditinstitutions thus

    triggering a new wave of

    financial crisis.

    Spring 2010 25

    euro enixfThe journal of INSOL Europe

    Eurofenix is the officialquarterly journal of INSOLEurope. It is essential readingfor INSOL Europe members,licensed insolvencypractitioners and allprofessionals involved inbusiness recovery throughoutEurope. Eurofenix is publishedfour times a year and is sentto all INSOL Europe membersproviding unique access toEuropes leading insolvencybusiness recoveryprofessionals and academics.

    To advertise in Eurofenix contact:[email protected]

    Sponsorship & Advertising Opportunities

    Eurofenix Spring 2010:Layout 1 8/4/10 14:39 Page 25

  • TURNAROUND WING

    Restructuring:In-court or out-of-court? In-court and out of court!INSOL Europes Turnaround Wing discusses the best options for a successful restructuring of an ailing business

    IntroductionThe following discussion paper ismeant to highlight the key choiceof options in a successfulrestructuring of an ailing business.It is also meant to initiate adiscussion overdue for years:

    In-court restructuring is a valuable option for abusiness in trouble to achievethe operational and thefinancial turnaround.

    The principal options open tostakeholders are either an out-of-court restructuring or an in-courtsolution through an insolvencyregime. Those are superimposedon the process of restructuring.This process principallyencompasses operationalrestructuring increasing theefficiency of assets of the business and financial restructuring addressing the inadequacy of afirms capital structure. For thepurpose of this paper, financialrestructuring also includes short-term crisis stabilisation. Thedrivers behind those twodimensions are markedly differentyet both dimensions influence eachother in an often complex way.

    The experience of the authorsof this discussion paper is thatpractitioners specialising in eitherout-of-court (consensual)restructurings or in-court-restructurings are often reluctantto take a holistic view and drawupon the most appropriate courseof action. Instead, they favour asuboptimal route for a variety ofreasons. Those include (lack of)familiarity with the alternativeprocess, fee and costconsiderations, or loss of control.Whilst those reasons areunderstandable from the point ofview of an individual player, theoverall outcome is usuallycompromised.

    This discussion papertherefore attempts to formulate aseries of pointers and questions inorder to improve decision makingand help the parties involved in arestructuring process identify theoptimal course of action regardlessof power considerations.

    Process of restructuringWhether or not a bus