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The Third Forum for Asian Insolvency Reform (FAIR) Progress Emergency measures The disposal culture Markets changing Pitfalls The Hole Diversified stakeholders.

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Presentation on theme: "The Third Forum for Asian Insolvency Reform (FAIR) Progress Emergency measures The disposal culture Markets changing Pitfalls The Hole Diversified stakeholders."— Presentation transcript:

1 The Third Forum for Asian Insolvency Reform (FAIR) Progress Emergency measures The disposal culture Markets changing Pitfalls The Hole Diversified stakeholders Multilateral criteria Lampros Vassiliou OECD Lead Consultant for Asian Insolvency New Regional Tour Insolvency Pizza The Implementation Gap Bubble risks Incentives

2 Lampros Vassiliou Progress Restructuring revolution Rehabilitation Laws Out of court workout frameworks Emergency measures – AMCs, RTCs, SPVs etc. Specialized courts and agencies home

3 Lampros Vassiliou The Hole Corporate sector collapse imminent despite currency contagion Inflated prices and fraud concealed by momentum Distrust attacks finance sector Gov intervenes via deposit guarantee & recapitalisation IMF loans and AMC bonds surrogate for corporate sector losses home

4 Lampros Vassiliou Pitfalls Specialized courts plagued Fictional rescheduling – the Disguised Moratorium Limited real restructuring New wave of reckless/ directed lending Loopholes quickly exposed and abused No liquidation backbone/ creditor rights base home

5 Lampros Vassiliou The Implementation Gap Civil remedies and secured transactions Prevention of fraud and corporate governance Rescue models outstep practice and culture Inappropriate role of rescue laws as stick Implementation major problem – Enforcement absent – tailored use of remedies home

6 Lampros Vassiliou Incentives Insolvency laws alone inadequate Triggers for sales – revaluation and provisioning Stagnation now – incentives gone – informal workouts, AMCs Deposit insurance Good guys gone – many crooks left home

7 Lampros Vassiliou home Emergency measures AMCs, rapid disposition agencies, RTC funds, CDRCs, SPAVs Limited lives – but remnants in culture New reckless lending – evidence of moral hazard Overliquidity – haircuts, the new dynamic Strong regulators – key to success

8 Lampros Vassiliou The disposal culture Focus on disposal rather than restructure Bad banks have not developed FRA - culture of bulk sale Short institutional memories home

9 Lampros Vassiliou Insolvency Pizza You know its a pizza because… Whats your flavour… The Atkins approach Tastes change with time Different recipes evolve home

10 Lampros Vassiliou Bubble risks Recovery or bubble has come too quick No change in fundamentals – increase in competitiveness Wave of reckless lending –flushed with cash Credits cards madness – fuel for false growth Withdraw of deposit insurance home

11 Lampros Vassiliou Diversified stakeholders AMCs, funds, vultures, traders etc. Each have own agenda at restructuring table Government interference - TPI Government examples – Resona? Predictability – one offs, special cases, test cases, precedents home

12 Lampros Vassiliou home Multilateral criteria ADB, IMF, Group 30, UNCITRAL, INSOL, World Bank Best practice criteria shaping investment decisions Efficiency, uniformity and conditionality Role as market movers – collective AMC? The FAIR and FIRM

13 Lampros Vassiliou Markets changing Crisis economies declining in activity Some stagnate – Philippines Some too difficult – Indonesia Some waiting – China Some hot – Chinese Taipei Some now moving – Japan Some starting - India US Bankruptcy Act home

14 Lampros Vassiliou India Pakistan ThailandPhilippines Indonesiandonesia Chinese, Taipei China HongHong KongKong Korea Japan Lampros Vassiliou Country by Country home The Third Forum for Asian Insolvency Reform (FAIR) Malaysia

15 Lampros Vassiliou India Next NPL sale boom market Sick Industrial / Companies Act + SARFESI Eradi Committee – National Company Law Tribunal replacing Board for Industrial and Financial Reconstruction Asset reconstruction companies home

16 Lampros Vassiliou Pakistan 1997 creditor friendly Recovery Act – 2001 amendment for mortgagee sales 1999 National Accountability Bureau – 30 day default and off to jail – inconsistent application 2000 CIRC, AMC and CIRSU – CIRC in swing Proposed Corporate Rehabilitation Ordinance – advisory committee, DIP entry, audited accounts, automatic conversion home

17 Lampros Vassiliou Thailand Death of the Financial Sector Restructuring Authority (FRA) and Corporate Debt Restructuring Advisory Committee (CDRAC) + Birth of the Thai Asset Management Corporation (TAMC) Proposals to amend the Bankruptcy Act – still at large Plight of planners and the TPI case - no appeals Tricks + loopholes – SSM, Natural Park, Tanayong home

18 Lampros Vassiliou Indonesia Commercial Court – Team 7 Jakarta Initiative Task Force (JITF) Indonesian Bank Restructuring Agency (IBRA) Manulife saga APP – Indonesia and China home

19 Lampros Vassiliou Philippines SEC sojourn Transfer of jurisdiction to courts Reality of distressed and acquired assets Proposed Corporate Recovery & Insolvency Act Corruption of Special Purpose Asset Vehicles Lack of investor interest home

20 Lampros Vassiliou Chinese Taipei Bulk Sales of NPL portfolios – hot, hot, hot last year Financial Institution Merger Law – bank mergers New Rehabilitation Law – March/April 2004 election – put reform on back burner Taiwan Asset Management Company Financial Restructuring Fund – expanding role beyond insolvent banks home

21 Lampros Vassiliou China 1986 Bankruptcy Act – SOEs – Liquidation Committee – more policy directed bankruptcy – New Foreign Invested Enterprises – Enterprise Committee New Rehabilitation Law - Radical Changchun approach Four asset management companies – provincial barriers – activity started but slow - RMB flotation overwhelming issue – put NPLs on back burner home

22 Lampros Vassiliou Hong Kong No rehabilitation law Companies (Corporate Rescue) Bill – 30 day moratorium – provisional supervisor – employee priority – insolvent trading – still dormant Back door listing industry Chinese window companies home

23 Lampros Vassiliou Korea Agreement for the Promotion of Corporate Workouts New Corporate Restructuring Promotion Law (CRPL) Korean Asset Management Corporation (KAMCO) – no limited life – role being redefined - buying housing loans and credit card ports now – 1200 employees Redefining of provisioning rules ended securitizations – true sale – recourse or guarantee clauses in ABS Korea (cont)

24 Lampros Vassiliou Korea (cont) CRVs and REITs – CRC Industry – questionable – manipulation of stocks SKG Global - fraud New proposals for consolidated laws – individual rehabilitation and UNCITRAL Reckless lending – credit cards Home

25 Lampros Vassiliou Malaysia Bank Mergers – how many anchor banks? Secret to success of CDRC – August 2001 revamp Danaharta / Danamodal – Dato Azman Danaharta – clear procedures – only 3000 odd accounts – special powers challenged – resolution not disposal – loan repaid early - bonds being redeemed – only one securitization – 58% recovery rate home

26 Lampros Vassiliou Japan Long term economic slump- Detailed insolvency & restructuring procedures – effective courts Resolution and Collection Corporation (RCC) – similar to Thai old AMC – very bad portfolio - will need similar orgs after IBRA, Danaharta – loan sales must cover purchase price = problem as land price decline Industrial Revitalization Corp of Japan (IRCJ) – banks reluctant due to valuation – only 6 debtor corps Japan (cont)Japan (cont)

27 Lampros Vassiliou Japan (cont) Deposit insurance – March 2004 lift full blanket – April 2005 – limited coverage – Japan example to region in this experience Need turnaround experts Resona Bank – example of financial crisis management – DICJ bought stock – replaced management Home

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