The Third Forum for Asian Insolvency Reform (FAIR)

1. The Third Forum for Asian Insolvency Reform (FAIR) Lampros Vassiliou OECD Lead Consultant for Asian Insolvency Progress Pitfalls Insolvency Pizza The Hole The Implementation Gap Diversifiedstakeholders Incentives Bubblerisks The disposal culture Emergency measures RegionalTour Markets changing Multilateral criteria New email: lamprosvassiliou@hotmail.com

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

3. 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 Lampros Vassiliou home

4. 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 Lampros Vassiliou home

5. 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 Lampros Vassiliou home

6. 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 Lampros Vassiliou home

7. 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 Lampros Vassiliou home

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

9. Insolvency Pizza • You know it’s a pizza because… • What’s your flavour… • The Atkins approach • Tastes change with time • Different recipes evolve Lampros Vassiliou home

10. 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 Lampros Vassiliou home

11. 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 Lampros Vassiliou home

12. 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 Lampros Vassiliou home

13. 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 Lampros Vassiliou home

14. Country by Country Japan Korea LamprosVassiliou China Chinese, Taipei The Third Forum for Asian Insolvency Reform (FAIR) Pakistan HongKong India Thailand Philippines Indonesia Malaysia Lampros Vassiliou home

15. 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 Lampros Vassiliou home

16. 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 Lampros Vassiliou home

17. 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 Lampros Vassiliou home

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

19. Philippines • 1981 - 2000 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 Lampros Vassiliou home

20. 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 Lampros Vassiliou home

21. 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 Lampros Vassiliou home

22. 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 Lampros Vassiliou home

23. 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) Lampros Vassiliou

24. 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 Lampros Vassiliou

25. 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 Lampros Vassiliou home

26. 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) Lampros Vassiliou

27. 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 Lampros Vassiliou