Insolvency Developments in Transition Countries Michel Nussbaumer, Chief Counsel Legal Transition Programme Thursday 23 October 2014.

Insolvency Developments

in Transition Countries

Michel Nussbaumer, Chief Counsel

Legal Transition Programme

Thursday 23 October 2014

2

Where we operate

3

Focus areas for EBRD policy dialogue

Secured

transactions

Infrastructure

regulation

Concessions/PPP

Insolvency

Corporate

governance

INVESTMENT

Securities

markets

Judicial

capacity

Public

procurement

4

EBRD Approach to Insolvency

The EBRD virtuous circle of legal reform

STANDARD SETTING

Preparing and promoting

international standards of best

practice

STANDARD SETTING

Preparing and promoting

international standards of best

practice

ASSESSMENT WORK

Assessing quality and effectiveness of legal systems

ASSESSMENT WORK

Assessing quality and effectiveness of legal systems

OUTREACH

Disseminating the experience gained so as to stimulate

future reforms

OUTREACH

Disseminating the experience gained so as to stimulate

future reforms

COUNTRY PROJECTS

Providing technical cooperation to

countries of operations

COUNTRY PROJECTS

Providing technical cooperation to

countries of operations

5

Next outreach event

Agenda

This invitation only, interactive workshop explores the role of the insolvency office holder and draws on the results of the EBRD’s 2013-2014 comparative assessment into the insolvency office holder profession in 27 of the jurisdictions.

Issues covered will include:

• What is most effective model for regulation?

• How can the best candidates be incentivised to become insolvency office holders?

• On what basis should office holder fees be determined and by whom?

• How effective are office holders at recovering assets from the debtor’s estate?

• What is the role of the courts in managing insolvency cases (and insolvency professionals)?

• How autonomous are insolvency office holders in practice?

• To what extent is the profession truly indispensable?

6

Law in transition online

7

Insolvency Law Developments in the EBRD Region

Reorganisation

InsolvencyInsolvency

Pre-insolvency Pre-insolvency

Trend No 1: Encouraging reorganisation

8

Insolvency Law Developments in the EBRD Region

Trend No 2: Strengthening “cram down” procedures

Definition of cram down: Any procedure through which a debtor and/or the majority of its creditors (or a class of creditors) can drive the acceptance of a composition plan despite the objections of a dissenting minority of creditors

Issue: how do you treat secured creditors?

9

Insolvency Law Developments in the EBRD Region

Trend No 3: “Tackling the Non-Performing Loans Problem”

NLPs as a percentage of total loans as of Q2 2013

Source: CESEE Bank Lending Survey, EIB, December 2013.

0%

5%

10%

15%

20%

25% 24.0%

13.5%

17.1%15.1%

21.00% 19.9%

NP

Ls i

n t

ota

l lo

an

s (

in %

)

10

EBRD Insolvency Office Holder Assessment

• 27 countries covered by the assessment

• Little comparative research to date

• Examined seven “pillars” of the profession• Authorisation to act

• Qualification and training

• Regulation, supervision and monitoring

• Work standards and ethics

• Powers and duties

• Appointment system

• Remuneration

• Insight into role and activities of key players in insolvency frameworks: court, creditors and office holders

11

Insolvency Office Holder Assessment

12

EBRD Insolvency Office Holder Assessment

• Group 1 countries (self-regulation)

• Group 2 countries (regulation by a dedicated body for IOHs/ bankruptcy)

• Group 3 countries (regulation by a government ministry)

• Group 4 countries (no real regulatory presence)

13

Conclusion/ Points for Discussion

• High level of insolvency law reform in Western Europe and in the EBRD Region

• Common theme: reorganisation and greater opportunities for business rescue

• Specific challenges for transition countries: weak judicial capacity, developing profession of insolvency office holders and lack of cooperation and trust within the banking sector

• EBRD goal: to help build a restructuring culture