ISSUE 17, JULY 2016 GLOBAL INSIGHT News, Views and Analysis from DLA Piper’s Global Restructuring Group GLOBAL INSIGHT News, Views and Analysis from DLA Piper’s Global Restructuring Group SCANNING THE HORIZON MICHAEL FIDDY, CO-CHAIR OF DLA PIPER’S GLOBAL RESTRUCTURING GROUP, REFLECTS ON SIGNIFICANT RESTRUCTURING DEVELOPMENTS AROUND THE WORLD This edition of Global Insight comes to you shortly after the In such historic times, it is more important than ever to United Kingdom voted to leave the European Union. remember that despite recent forum-shopping trends favouring England’s regimes, it is but one island. The global economic The morning after the vote we provided clients with a summary crisis highlighted deficiencies in the insolvency and restructuring of its immediate impact, stressing that the most important regimes of many countries around the world and prompted point to note is that nothing will change legally until legislation large-scale reform. Lawyers from our Global Restructuring is passed. That is likely to take at least two years while the UK group are involved both openly and confidentially in the legal negotiates the terms of its exit. The UK’s departure from the reform agenda of several nations. Common themes run EU (after the period of negotiations) would remove the throughout the reform efforts, including: automatic recognition of insolvency proceedings and judgments between the UK and European member states. Consequently, ■ Promoting a rescue culture as an alternative to terminal liquidation proceedings as with so many other areas of law, the UK will need to negotiate new parameters for such recognition. ■ Improving efficiency by reducing formalities and timescales For now and despite the monumentally uncertain political landscape (at the time of writing, the government is looking to ■ Improving recovery rates for creditors appoint a new prime minister and considering the extent to which it requires parliamentary approval, which some consider it may not get, to trigger the formal exit process) for UK restructuring ■ Introducing increased regulation of insolvency practitioners professionals it is business as usual. Interest in UK schemes of arrangement as a fast, cost-effective and efficient means to restructure domestic and foreign companies’ debts remains keen. ■ Increasing out-of-court options The UK prides itself on providing some of the world’s leading business rescue tools. Not content to rest on its laurels, shortly Since the financial crisis, almost all countries have taken steps before the UK referendum, the government initiated a public towards introducing changes to insolvency laws. The following consultation to consider enhancements to fill perceived gaps in three, recent developments provide good examples of the the existing regimes: a three month moratorium for all financially general direction of travel. distressed but not necessarily insolvent companies; greater flexibility to compel the continued supply of essential services; the introduction of a new rescue plan procedure; and a request for further information to consider methods by which routes to post-commencement finance might be improved. We shall wait to see the outcome of the consultation but I am confident that having invested in the provision of flexible, dynamic solutions, the UK will take whatever measures it considers necessary to continue supporting the European drive for better recognition and coordination of cross border business rescue and insolvency solutions. www.dlapiper.com | 1 GLOBAL INSIGHT News, Views and Analysis from DLA Piper’s Global Restructuring Group SCANNING THE HORIZON In the wake of the Cypriot 2013 banking crisis, in April 2015 its The importance of staying abreast of legislative developments parliament approved new insolvency laws aimed at promoting a should not be underestimated. The World provides a global rescue culture and making the existing regime more efficient. A shopping centre for restructuring solutions. Each company’s new restructuring-based regime (examinership) was introduced, financial difficulties are unique and it is incumbent upon global which is similar to the UK’s administration process. Under the restructuring professionals to consider the best forum for regime, an insolvency practitioner (also now subject to greater resolving the peculiar challenges of each. regulation) is appointed to develop and agree proposals for the company’s restructuring, with four months’ protection against In our legislative reform work, we are seeing increased creditor action. Cyprus’ reforms saw it rise from 51st to 17th importance placed by governments on the World Bank’s place in the World Bank Group’s Doing Business reports which ranking of insolvency proceedings, each displaying a keen desire rank countries by their ease of doing business. In relation to to ascend in the rankings. Corporate recovery legislation restructuring and insolvency, rankings are by reference to presents a challenging dichotomy: competition between factors such as average recovery rates, the time it takes for governments helps to drive innovation; and yet the lack of each process to run its course and the degree to which the harmonisation between the insolvency laws of different process provides for creditor participation. countries presents potential barriers to investment. The theme of harmonisation brings me back to the start. Since the start of this year, Poland and India have each Shortly before the UK referendum, the latest EC public introduced significant reforms. On 1 January 2016, Poland consultation on insolvency proceedings was specifically aimed at brought in separate acts for bankruptcy and restructuring laws, exploring the scope for areas of insolvency laws around Europe thus keeping rescue proceedings away from the stigma that can to be brought more in line with each other. If the UK proceeds attach to bankruptcy proceedings. to trigger the formal exit process, it will need to consider whether to replicate or adopt any harmonised principles which A number of options have been introduced for the emerge from the consultation exercise. The right to choose to restructuring of potentially viable companies, including a implement unique and World-leading solutions will no doubt procedure to agree a plan with the company’s creditors. continue to be attractive, but for cross border enterprises, even gold-plated restructuring regimes will only be of relevance In India, as recently as May this year both Houses of Parliament if they are afforded cross border recognition. In restructuring passed the landmark Bankruptcy and Insolvency Code. The law, as much as so many other areas of law, the nature of the Code consolidates, in one place, aspects of legislation currently UK’s new relationship with the rest of Europe will be key. featured in an array of separate pieces of legislation and features greater regulation and measures to enhance efficiencies as well KAZAKHSTAN as the introduction of a new 180-day corporate insolvency Kazakhstan has undergone reform in stages since 2012, when resolution procedure. A stay on creditor action arises its insolvency laws were limited and liquidation was the most throughout the currency of the procedure (which can be common and available option for insolvent companies. Since extended once, for up to 90 days). For insolvency proceedings, then, numerous rounds of reform have introduced measures for and echoing a step taken by the UK in 2003, the Code provides the reorganisation of companies, supporting the raising of a new payment waterfall, with the Indian Government now finance by insolvent companies, promoting sales of assets as a sitting behind unsecured creditors and relinquishing its going concern and clarifying and simplifying existing procedures. first-ranking position. www.dlapiper.com | 2 GLOBAL INSIGHT News, Views and Analysis from DLA Piper’s Global Restructuring Group SCANNING THE HORIZON CONSEQUENCES OF REFORM WHERE NEXT? It is clear that many countries are taking big steps to reform The Jordanian Government announced the Jordan Economic and improve their insolvency and restructuring regimes. Legislation Reform project in February this year, with insolvency However, it will be interesting to see whether these efforts will laws forming part of the main focus. The current regime in Jordan be enough to encourage insolvent companies to use their home is predominately focused on liquidation, and so introducing a regimes, or whether they will prefer to use the more tried and rescue regime could be one of the possibilities considered. tested, established regimes of other jurisdictions. Even jurisdictions with more established insolvency and restructuring laws, such as Australia, Switzerland and the The World Bank Group’s Doing Business reports rank United Kingdom are currently undertaking reform. With countries by their ease of doing business, including in relation insolvent companies shopping around for the most beneficial to restructuring and insolvency. The reports take into account jurisdictions, countries must ensure that their regimes are various factors, including average recovery rate, time, cost and keeping up with the competition. creditor participation. DLA Piper has been consulting with governments in a The effects of recent reform can certainly be seen by some number of countries and providing advice as they develop jurisdictions’ sharp rise in the restructuring and insolvency their restructuring and insolvency regimes. With dedicated rankings between the 2015 and 2016