Have the reforms implemented in the aftermath of the 1997 Asian financial crisis enabled Asia to deal with the major collapse of a multinational corporation? The answer is a resounding no. The Asian Pulp & Paper (APP) US$13.9bn collapse exemplifies the need for cross-border insolvency law reform and the adoption of informal workout principles.

APP collapsed in 2001, with debts of US$13.9bn. The company was headquartered in Singapore, but its major operations were elsewhere in the Asian region, particularly in Indonesia and China. Shareholders and financiers of the company were based throughout Asia as well as in the US and Europe.

A unilateral debt standstill announced over three years ago remains in effect, with no informal workout agreement having yet been reached.

A Court application to have judicial managers appointed in Singapore failed in part due to the futility of making such orders, given the lack of recognition of foreign insolvency administrations in Indonesia  and China. Additionally, over the past three years, APP has breached most internationally accepted principles for informal workouts. Essentially APP has been able to avoid paying its creditors or going into external administration because there is simply no effective way to force its hand.

The lack of effective cross-border insolvency and secured transaction laws coupled with variable informal workout regimes in Asia is detrimental to the creditors of bankrupt companies, in particular multinationals. Such a combination of inadequate laws and a lack of institutional capacity to enforce them tends to discourage foreign investment in the region.

The Asian Development Bank is currently conducting a regional technical assistance to promote regional cooperation in insolvency law reform. In an Interim Report (see http://adb.bdw.com), prepared by Blake Dawson Waldron as international consultants, a regional cross-border insolvency treaty and the adoption of informal workout and secured transaction law principles were recommended. If implemented, the reforms would enable cases like APP to be dealt with more effectively.

By Richard Fisher, chairman of partners
and Michael Sloan, senior associate
Blake Dawson Waldron
Address: Level 36,
\Grosvenor Place.
225 George Street, Sydney NSW
2000, Australia
Tel: +612 9258 6000
E-mail: richard.fisher@bdw.com