It is now a truism to affirm that in all lawmaking a gap opens up between law on the books and law in action. This gap is a central focus of research for empirical socio-legal scholars of law worldwide.2 It is also increasingly recognised by law and finance scholars who assert that law inherently is “incomplete,” that its effectiveness relies heavily on the institutions of implementation.3 It is precisely this gap that has led the EBRD, in its surveys of Central and Eastern Europe, to measure separately the enactment and implementation (or effectiveness) of insolvency.4 Effectiveness in implementation becomes the ultimate criterion for appraisal of legal change and law reform.

History has shown that insolvency laws were developed amid economic turmoil because the magnitude of the insolvent debtors’ unpaid debts acted as the pressure on the development of the insolvency law. Economic crisis let people realise that insolvency law is necessary in addition to normal creditor-debtor relationship laws. The US insolvency law evolved while being enacted, repealed and re-enacted four times during the economic downfalls of the 1800’s.1 Many economies in transition in Central and Eastern Europe must have developed insolvency laws in the 1980’s as they first had insolvent firms which were not seen in the planned economy.2 Latin American countries also reformed their insolvency laws when economies were in such bad shape that sovereign states were on the edge of bankruptcy in the early 1990’s.

South Asia is a multiracial and multilingual region, and the economic and legal systems of its countries reflect the customs of its various communities. Expanding at a rate in excess of 8% a year, the Indian economy is one of the fastest growing economies not only in the region but in the world. Constantly striving to raise the annual growth rate to 8-10%, the political leadership is taking steps to simplify tedious regulations and procedures, rationalise policies, and introduce an effective legal and regulatory framework in all sectors. In Sri Lanka, the breakdown of the cease-fire between the government and the Liberation Tigers of Tamil Elam continues to haunt the economy. Due to the cease-fire, Sri Lanka’s economy grew at a rate of 6% of gross domestic product (GDP) in 2005. Sri Lanka continues to make steady progress in financial sector reforms, as well as in improving the efficiency of the banking sector. In Nepal, the Maoist insurgency brought the economic and financial system to a near state of collapse. The economic future of the country remains uncertain until a long-term political solution is achieved. Recent positive political developments have raised hopes of economic stability. A number of significant ordinances were issued in the last three years to introduce new laws or amend the existing as part of legal, judicial and financial sector reforms. These ordinances would require approval of the new parliament. Pakistan and Bangladesh continue to take measures to strengthen their financial and legal systems as part of their overall economic stabilisation programmes. Both countries have enacted copious legislation concerning the financial sector since 1990.

The Law on Bankruptcy of June 1905, as amended in 1998 during Indonesia’s economic crisis, has been fully replaced. The new Indonesian Bankruptcy Law (Law Number 37 of 2004 on Bankruptcy and Suspension of Payment) was promulgated on 18 October 2004. But, the new law has yet to obtain legitimacy due to inadequacies in the amendments made in 1998 and some fundamental problems in the judiciary itself, which are now being addressed by a Judicial Commission that was established on 2 August 2005.

In 2000, Japan enacted the Law of Recognition and Assistance for Foreign Insolvency Proceedings (LRAFIP) which adopted almost all the provisions of the UNCITRAL Model Law on Cross-Border Insolvency, and abolished the notorious territorialism contained in Japanese insolvency laws for so many years. Since the LRAFIP became effective in 2002, only two cases have been filed (one by a foreign trustee and the other by a debtor in possession), calling for recognition and assistance under the LRAFIP.

Nepal did not exist as a single country in a true political sense prior to unification by King Prithivi Narayan Shah Dev in 1768 (1825 Bikram Sambat). Present day Nepal was divided into various small kingdoms. The Kathmandu valley itself consisted of three separate kingdoms. All of the separate kingdoms had their own set of legal systems and ruled mainly on the basis of religion.

Like all countries hit by the 1997 economic crisis, there is a positive correlation between the amount of debt being restructured and economic and industrial recovery. This correlation also extends to differences in the magnitude of economic recoveries among Asian countries. The first three to four years after the 1997 crisis tended to show that countries such as Korea, and Malaysia, which substantially reduced NPLs or had less initial NPLs, experienced greater corporate debt restructuring than Thailand or Indonesia, which also registered higher growth during this period.

The objective of this paper is to explain how Thailand, after being hit by the economic crisis in 1997, reformed the bankruptcy system in order to deal with the subsequent growth of non-performing loans. This paper shows how the changes were made and the reasons behind the changes. It is now possible to see if they were beneficial and, most important, if they contributed to an appropriate and sustainable bankruptcy system. The paper also identifies the advantages and disadvantages of the system and suggests ways forward both for Thailand and other countries in the region. Finally, it illustrates the ongoing process of change in Thailand.

Over the past few years, the Vietnamese economy has enjoyed impressive growth rates. The country issued its first sovereign bond in 2005 with a total face value of USD (United States dollars) 750 million (which was sold out in the US, having been over-subscribed by a factor of four times). The investment environment has been good with increasing interest in both direct and indirect foreign investment. This positive picture seems to have made people overly optimistic and insufficiently cautious about the risk of a potential downturn in the economy.

Bankruptcy is a final stage where a market subject exits the market due to its business failure. From a court’s point of view, a bankruptcy law is actually the procedural and substantive law applied by the court while liquidating debtors. Courts pay great attention to the legislation and reform of bankruptcy laws. The Supreme People’s Court of China participated actively in the formulation of the Enterprise Bankruptcy Law and uses its practical experience to perfect the current bankruptcy system by adopting methods of judicial interpretation and case guidance.

Bankruptcy occurs when a debtor is unable to repay debts due, according to the original intent of bankruptcy legislation, and in accordance with the provisions of Article XXXI of the Regulations of the Supreme People’s Court on Several Issues Concerning the Trial of Enterprise Bankruptcy Cases (the Regulations). The “inability to repay the debts due” means that the time limit for the debtor to perform on debts has expired and the debtor is unable to repay.

Article 32 of the Enterprise Bankruptcy Law for Trial Implementation provides that: With respect to claims secured with property that are established before bankruptcy is declared, the creditors enjoy the right to receive repayment with priority with respect to such security. With respect to claims that are secured with property whose amount exceeds the value of the security collateral, the part that is not repaid constitutes a bankruptcy claim, and will be repaid in accordance with the bankruptcy proceedings.

The theme of creditor participation can be looked at from two angles: the legal framework and the commercial realities. Focusing on China and Hong Kong, China, there are two questions to answer: 1) do creditors participate?; and 2) do creditors want to participate? The answer to both of these questions is: probably not.

In the course of the modernisation of the insolvency system in many jurisdictions, efficiency and effectiveness have been generally accepted as two basic principles. These principles are reflected in the recent World Bank Principles and Guidelines and the Model Law on Cross-Border Insolvency. The successful development of an insolvency regime depends crucially upon the competence and integrity of the appointed insolvency administrators.

Creditor participation in insolvency proceedings has been widely seen as an essential feature of any well-developed insolvency administration system. This notion has been expressed in different ways in national systems of insolvency law, ranging from principles such as the pari passu rule, to the holding of creditor meetings to decide matters of importance in the insolvency proceedings, to the role of insolvency representatives in such proceedings. Over the last decade we have seen the emergence of a number of multilateral efforts to more clearly articulate insolvency norms or “best practice” guidelines. These have included such outcomes as the Asian Development Bank’s 2000 Good Practice Standards, the World Bank and IMF’s 2005 draft Principles for Effective Insolvency and Creditor Rights Systems, and the monumental 2004 UNCITRAL Legislative Guide on Insolvency Law (the UNCITRAL Guide). The emergence of these multilateral statements witnesses the regional and global significance of insolvency laws and the role that they play in providing a foundation for a market economy. This paper will examine the creditor participation standards evident in this body of international best practice norms. Ultimately, it is argued that creditor participation in insolvency is an essential element in a rule of law based market economy.

The most valuable assets of any country are its employees, and economic progress and development often hinge upon the degree to which the citizens of a country can be gainfully employed on a sustainable basis. In an increasingly global economy, businesses face enormous competitive pressures to minimise costs and maximise returns, often at the expense of domestic labour. Of course, there are winners and losers in this process, as jobs from one country are outsourced to another. Traumatic as this is, it is part of an inevitable cycle and is not nearly as traumatic as the more abrupt losses that befall employees when their employer files for bankruptcy.

A Chinese proverb says “respect for one’s parents is the highest duty of civil life.” These words carry particular significance today. As life expectancies increase and birth rates fall around the world, the global population is aging rapidly. This phenomenon already has reached a critical point in many developed nations. In 1995, there were 1.3, 2.3, 2.6, 2.7, 3.6, and 4.2 workers per retiree in Italy, Germany, Japan, the United Kingdom, Canada and the United States respectively. By the year 2050, it is predicted that there will only be 0.7, 1.2, 1.5, 2.1, 1.6 and 2.3 workers respectively per retiree in these countries. Meanwhile, developing nations are also in the midst of a major demographic shift. Indeed, while nearly 60 percent of the elderly currently live in developing countries, that percentage is projected to increase to 80 percent by 2050. In developing economies such as China, Indonesia, and Korea the percentage of these countries’ populations over 60 is expected to be over 30 percent by 2050. In a trend similar to that in developed countries, the ratio of workers to the elderly in China is expected to drop from 9:1 to 2.6:1 over the next 40 years.

For centuries, jurisdictions followed the so called territoriality principle; i.e. they closed their doors to foreign administrators (and creditors as well) and did not allow their law to reach out beyond the borders of their respective jurisdictions. In the nineties, the UNCITRAL model law on trans-border insolvency was proposed. At present, it has been adopted by ten jurisdictions. A number of other jurisdictions plan to do adopt it in the future, or draft their own cross-border law based on the model. These jurisdictions represent both common law and civil law countries. Thus, it is a proper starting point for any jurisdiction to have its own cross-border insolvency law be identical to or modelled after the UNCITRAL proposal.

Comparatively speaking, the criteria used for deeming an enterprise bankrupt and the priority of labour creditors are two core problems in insolvency law. The former is the precondition for the execution of insolvency law. The latter influences the execution of insolvency law; it establishes creditors’ rights and interests, and develops an effective economic order. The Chinese Insolvency Law is about to be revised. The new one will be geared to international standards in accordance with conditions extant in China. This text summarises pertinent regulations in 42 different countries.

In many emerging market debt restructurings involving corporate debtors, creditors often find themselves at a distinct disadvantage vis-à-vis the debtors and their controlling shareholders. Indeed, in certain cases, creditors may believe that they face seemingly insurmountable obstacles in negotiating such restructurings. In some cases, foreign creditors, perhaps even more so than domestic creditors, may believe or come to realize over time that they are especially disadvantaged in such restructurings.