Учебный год 2023 / phd

will perhaps add value in the endeavour of attracting, protecting and promoting cross-border trade and investment in accordance with the agreed standards and principles during financial difficulties of the entities involved in the cross-border trade and investments.59 This may perhaps also entail adopting best practices common to most of its trade and investment partners’ insolvency law systems and cross-border insolvency in particular. The potential need of embracing common practices in dealing with cross-border insolvencies directly links with the idea and the rationale behind the standardisation initiative.

Since insolvency laws can significantly influence investment decisions, in terms of its effects on investment incentives, which can result in additional insolvency costs, a country may have to reconsider maintaining regulatory frameworks that contradict legitimate expectations of investors and trading partners in the global market.60 Essentially, all the above forces not only tend to pull insolvency law away from its traditional orientation of addressing domestic concerns but also to pull countries away from purely territorialist approaches that are perhaps envisaged in their insolvency legal frameworks. Consistent with the implication arising from such forces, there is a widely held consensus in favour of assistance, co-operation and co-ordination of cross-border insolvencies as a means of preserving rather than destroying going concern value. 61

The most critical challenge that the SSA region faces is sustaining and accelerating the economic growth that it has been attaining since the 1990s which is reflected in the growth of export trade and foreign direct investment inflow.62

< http://wwwwds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2003/09/23/000094946_03091 104060047/Rendered/PDF/multi0page.pdf > accessed 22/02/2010

59 O Chung, ‘The Lopsided International Investment Law Regime and Its Effect on the Future of Investor-State Arbitration’ (2006-2007) 47 Va J Int’l L 953, 960

60 RK Rasmussen ‘The Ex Ante Effects of Insolvency Reform on Investment Incentives’ (1994) 72 Wash U L Q 1159, 1163; and E Berkovitch, R Israel and JF Zender, ‘An optimal Insolvency Law and firm Specific investments (1997) 41 Eur Econ Rev 487, 497

61DW Arner, and others, ‘Property Rights, Collateral, Creditor Rights, and Insolvency in East Asia’ (2007) Tex Int’l LJ 515, 543

62IMF, Regional Economic Outlook: sub-Saharan Africa (Washington 2009)1; DN Abdulai, ‘Attracting Foreign Direct Investment for Growth and Development in sub-Saharan Africa: Policy Options and Strategic Alternatives’ (2007) 37(2) Africa Development 1, 6. The inflation had dropped from a peak of 121.6% in 1994 to 9.9% in 2002; UNCTAD 2008(n 29) xvii, 38-45

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Whatever improvement made, it falls short of the level required to achieve the Millennium Development Goal of halving poverty by 2015.63 The region is characterised by the least developed economies, which are experiencing a great deal of pressing problems such as poor governance, poverty and diseases. In comparison with other developing countries, this region has not attracted much in terms of commercial dealing and foreign investment. This is perhaps one of the reasons why the region has not experienced much activity in terms of crossborder insolvency reform because such undertaking has not been regarded as a priority. The low level of economic growth and development seems to have rendered other aspects, such as efforts to reduce poverty and democratisation to be perceived as more relevant and pressing than others.64

Accordingly, it can be said that the presence of an effective insolvency law that comprehensively addresses cross-border issues is, given the growing level of cross-border trade and investment involving and among SSA countries, now more relevant than before. In this context, the international insolvency standards may offer important benchmarks and starting points for amelioration of insolvency systems of SSA. This is notwithstanding concerns raised against the standardisation initiatives as a whole.

Firstly, the standards offer an important base for development of modern insolvency systems which could be tailored to the needs and circumstances of the countries in the region. The development of an effective framework that caters for cross-border insolvency as well will play a role in mitigating the repercussions of financial crisis by virtue of having procedures that takes account of interests of all concerned parties. It is important in this respect to note that most of these countries might have no practical experience of application of insolvency laws that reflects what pertains in the benchmarks. In fact, the

(indicating that total number of foreign direct inflow to Africa grew to by 16% to $ 53 Billion in 2007 increasing the region’s FDI stock to 393 billion with the 47 countries of SSA attracting 58% of the inflow, up from 49 in 2006. And further that the growth marks the highest level in the three consecutive years of FDI growth in the region, though its share in the global FDI remained at 3%.

63Ibid

64IMF and World Bank (n 28) 13

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existence of an appropriate and effective legal framework for business failure that specifies the rights and duties of debtors and creditors is one of the factors that facilitates crisis resolution and prevention of broader contagion effects which can occur when a large firm with an extensive international network of entities becomes insolvent.

Secondly, since a country’s observance of insolvency standards is now increasingly being factored into lending and investment decisions, be it individually or as part of a package, having an efficient insolvency system that observes the international best practices and is tailored to the local needs will help encourage and attract domestic and foreign investors. This will in turn add value to the economies of these countries in general and will contribute to regard as trusted member of international community.65 It seems that a country that does not comply with the standards is increasingly becoming disadvantaged in attracting international capital, because it is likely to suffer lower credit ratings and higher risk premiums.66 The observance of the standards could also be seen to complement the on-going initiative by a majority of the SSA countries to create a conducive environment for private sector development which started with the liberalisation drive in the mid 1980s and early 1990s under the auspices of the multilateral institutions.67 It will also reinforce the efforts towards amelioration of their legal systems inherited from colonial powers and overcome any inherent limitation embedded in the legal systems from which their laws were based.68

While it is important to preserve the universal nature of the insolvency standards in the process of aligning SSA’s insolvency systems to the benchmarks, it is also

65See n 37 above

66PD’s Investment, Competition and Business Development Services Team, ‘Approaching International Financial Standards and Codes’ 10 December 2003 < http://www.sed.manchester.ac.uk/research/iarc/edais/wordfiles/HowtoApproachInternationalFinancialStandardsCodes.doc > accessed 2/10/2009; and N Onder (n 18) 2

67WP Ofosu-Amaah, Reforming BusinessRelated Laws to Promote Private Sector Development: The World Bank Experience in Africa (World Bank, Washington 2000)

68It is to be noted that the foundations of prevailing insolvency law systems in most of SSA are based on the European countries which were their former colonial powers. This is a subject of extensive discussion in chapter five of this thesis.

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appropriate to define a number of domestic priorities and frameworks to address issues and concerns raised. The practical question is how compliance with the insolvency standards can be achieved without jeopardising the local contexts and needs. Understandably, local context and needs are critical in insuring relevance and practicality of any crafted cross-border insolvency framework.69 In the context of cross-border insolvency, the apparent challenge is for SSA to craft frameworks that not only sustain the achievements made thus far and address interests of cross-border trade and investments but also frameworks that seek to contribute towards reducing poverty. It is to be noted that, despite the existence of many factors which may be attributed to the limited growth and development in SSA, many analysts argue that policy choices that restrict competitiveness are among major obstacles while others tend to associate the limited growth to the problems of the ‘one-size-fits all’ prescriptions of the multilateral institutions which developing countries have pursued since the mid 1980s and early 1990s.70

Insofar as cross-border insolvency reform is concerned, the above observations seem to point to the need for SSA countries to make informed policy choices commensurate with local circumstances and the nature of the demand for economic growth and development. Perhaps one of the best ways is to approach the challenge in a broader context of development strategies. And thus, taking strategies that look for policies that ‘reduce poverty as they promote growth; that

69N Martin ‘The Role of History and Culture in Developing Bankruptcy and Insolvency Systems: The Perils of Legal Transplantation’ (2005) 28 BC Int’l & Comp L Rev 1, 4; F Tung, ‘Fear of Commitment in International Bankruptcy’ (2000-2001) 33 Geo Wash Int’l L Rev 555, 561; and L Hoffmann, ‘Cross-Border Insolvency (The 1996 Denning Lecture) < www.filewiz.co.uk/bacfi/1996_denning_lecture.pdf > accessed 12/3/2009. Apparently, different policy choices that characterise a given insolvency system are a reflection of such country’s norms and inclinations.

70A Arieff, MA Weiss, and VC Jones, ‘The Global Economic Crisis: Impact on Sub-Saharan Africa and Global Policy Responses’, (US Congressional Research Service Report 2009) < www.crs.gov > accessed 23/01/2010; J Stiglitz (n16)16, 80-88. The prescriptions were inherent in the policy reform measures, prescribed by the multilateral institutions. The measures were part of The Washington Consensus (a consensus between the IMF, the World Bank and the US Treasury regarding the right policies for developing countries). They signified a radically different approach to economic development and stabilization.’ For the existing theories as to the negative effect of the Multilateral institutions’ prescriptions on developing countries see for instances observations made by J Hari, ‘There's real hope from Haiti and it's not what you expect’ The Independent (London 5/02/2010) <http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-theres-real-hope-

from-haiti-and-its-not-what-you-expect-1889958.html> accessed 10/02/2010

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shun policies that increase poverty with little if any gain in growth, and that in assessing situations where there are trade-offs, put a heavy weight on impact on the poor.’71

3.4Appraising the Nature and Compliance’s Assessments of the International Insolvency Standards from a SSA Perspective

All criticisms levelled against the development and dissemination of various international standards are equally relevant and valid to the international insolvency standards and the assessments for the extent of compliance with the standards. One such criticism is in relation to the exclusion of developing countries from the legislative processes for developing such standards.72 Whatever the quality of the standards developed is, the manner in which they are created and directed to developing countries for compliance creates an ‘..unfortunate perception of a new form of Western “imperialism” over developing…countries.’73

The prevalent features that cut across the global insolvency norms from which the standards emanate include specific and clearly stated policy objectives and goals of effective insolvency systems; non-discrimination, under a fair and equitable treatment principle; collectivity principle; criteria for commencement of insolvency proceedings; cross-border insolvency aspects; efficiency, transparency, and predictability principles; liquidation versus reorganisation; requirement and regulation of competent and ethical practitioners; and presence of a functional and effective judicial system.74 Other important features in so far as they relate to cross-border insolvency include, establishment of clear rules for ranking of priority claims based on free market conditions and commercial

71J Stiglitz (n 16) 82 and 83

72HV Morais (n 22 ) 779; and CG Paulus (n 24) 761. Paulus notes that there has been a general lack of involvement of these countries in international insolvency law reform initiatives.

73HV Morais (n 22) 806

74See n 17 above. Indeed, these principles especially efficiency, transparency and predictability elements are the bedrock of the theories on insolvency, cross-border insolvency in particular and are actually the central focus of the debate on competing theories in cross-border insolvency.

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bargains, as opposed to political and social concerns;75 balancing the interests of the debtors’ stakeholder against the relevant social, political, and other policy considerations that have an impact on the economic and legal goals of insolvency proceedings;76 and the use of lex fori concursus in determining the applicable law in cross-border insolvencies to control ‘all aspects of the commencement, conduct, administration and conclusion,’77 of the proceeding.

Essentially, the benchmarks are founded on the conventional wisdom arising from the Washington Consensus policies which link the rule of law with economic growth, sustainable development and poverty alleviation.78 They are based on and influenced by the so-called best practices prevailing mainly in developed countries.79 Scholars have argued in this connection that the ‘pervasive and in-depth’ influence of the US in designing and crafting the benchmarks is overwhelming.80 The dominant consensus as reflected in Professor Fletcher’s contention is that the international insolvency standards embody ‘the necessary ingredients of a robust and efficient system for regulating debtor-creditor relationships and for administering and distributing the estates of insolvent debtors.’81 They address a whole range of procedural and substantive aspects of insolvency law in anticipation of ameliorating the harmonisation of and predictability in, the resolution of cross-border insolvency in a manner that supports international commerce and development.82

75UNCITRAL Legislative Guide on Insolvency Law (n 31) 10-15

76UNCITRAL Legislative Guide on Insolvency (n 31) 9

77UNCITRAL Legislative Guide on Insolvency (n 31) 73, recommendation 31

78J Stiglitz (n 16 ) 80-88 and 233; TC Halliday and BG Carruthers (n 34)1150; TC Halliday and BG Carruthers, Bankrupt: Global Lawmaking and Systemic Financial Crisis (Stanford University Press, California 2009)

79UNCTAD (n 18) 89; IMF and World Bank (n 18) 18; TC Halliday and BG Carruthers (n 41) 1185; TC Halliday and BG Carruthers, ‘Negotiating Globalization: Global Scripts and Intermediation in the Construction of Asian Insolvency Regimes’ (2006) 31 Law and Social Inquiry 521, 544-545; and N Onder (n 18); and R Tomasic (n 11)

80TC Halliday and BG Carruthers (n 34) 1185; TC Halliday and BG Carruthers (n 79) 544-545. See also N Onder (n 18) and R Tomasic (n 11) 9

81IF Fletcher, ‘Maintaining the Momentum: The Continuing Quest for Global Standards and Principles to Govern Cross-Border Insolvency’ (2006-2007) Brook J Int’l L 767,774 and 775

82R Tomasic (n 11); and IF Fletcher (n 81) 773 and 775. It is common knowledge that harmonisation of substantive law is critical to adoption and implementation of a universalist approach.

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While the standards are meant to promote convergence and improve the quality of insolvency systems especially those of developing and emerging economies, which as earlier discussed, are believed to have weak systems that are potentially threatening the stability of the global financial systems,83 they are literally not translated to directly reflect or inform the local contexts of these countries.84 Although they infer that they are not meant to suggest a ‘one-size-fits-all approach’ that is exactly what they seem to practically envision for the vulnerable SSA countries which, given their relation with the multilateral institutions, as that of a donor/lender-and-recipient, are unlikely to challenge any prescription suggested by such institutions.85

While the standards seem to allow room for local innovation and adaptation in response to local policies and circumstances,86 they contain limitations that tend to preclude such freedom particularly in relation to matters which are so central to any insolvency system and cross-border insolvency regime. For example, there are apparent restrictions as to the extent to which local policy aspects can be used in formulation of local priority.87

83The laws were said to be too weak to address the demands of the globalised market economy, withstand macroeconomic instabilities that are inescapable in a free market economy and guarantee predictability and transparency. In particular, they lack effective rescue procedures, and a predictable procedure for co-operation and co-ordination in cross-border insolvencies. See DW Arner and others (n 61 ) 549-550

84TC Halliday (n 26) 1101, arguing that ‘the concept of “best practices” is fallacious’; see also generally, TC Halliday, and BG Carruthers (n 78)

85Ibid. See also D Katona, ‘Challenging the Global Structure Through Self-Determination: An African Perspective’ (1999) 14 Am U Int’l L Rev 1459. The rigid implementation conditions that attach to the multilateral institutions’ loans make the recommendations given as a result of assessment and indeed the benchmarks promoted by such institutions mandatory, contrary to the spirit of the assessment programme and the soft law approach that the benchmarks ostensibly characterise.

86For example, the introduction and executive summary for the World Bank’s ‘Principles and Guidelines for Effective Insolvency and Creditor Rights Systems’, April 2001 noted clearly that: ‘Adopting international best practices to the realities of developing countries…..requires an understanding of the market environments in which these systems operate. The challenge includes weak or unclear social protection mechanisms, weak financial institutions and capital markets, ineffective corporate governance and uncompetitive business, and ineffective laws and institutions. These obstacles pose enormous challenges to the adoption of systems that address the needs of developing countries while keeping pace with global trends and international best practices. The application of the principles….at the country level will be by domestic policy choices and by the comparative strengths (or weakness) of laws and institutions.’ This however is not reflected in its entirety in the assessment undertaken and examined in this study.

87UNCITRAL Legislative Guide on Insolvency Law (n 31) 9, According to the Guide insolvency laws must balance the interests of the debtors’ stakeholder against the relevant social, political,

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Arguably, the very foundation and attributes of the standards make any slavish adoption of the standards by SSA countries open to the potential risk of transplantation effect, rejection and consequently an implementation gap.88 The transplantation effect could be by virtue of a lack of ‘fitness for purpose’ of any legislation purporting to adopt the standards which may potentially result into the implementation gap problem, extensively discussed elsewhere by other scholars. 89 It is common knowledge that a majority of these countries in their endeavour to adopt the standards will have the incentive to transplant foreign legislation, most likely from developed countries, such as the UK or US, which are regarded as having well developed insolvency systems which have long been tested.90 This poses a high risk of failure to take account of the socio-economic conditions in which the legal structures are situated in SSA countries, which are quite different from those in advanced economies.91 Thus, instead of improving domestic legal systems of SSA countries, a standardisation initiative may undermine development of effective legal systems in these countries. 92 As aptly elaborated by Pistor:

and other policy considerations that have an impact on the economic and legal goals of insolvency proceedings. More specifically for local priority system, the Guide states that ‘[t]o the greatest extent possible, those priorities should be based upon commercial bargains and not reflect social and political concerns that have the potential to distort the outcome of insolvency.’ Article 12 of the Guide to Enactment of the UNCITRAL Model Law explicitly states that while countries are free to make any changes they see fit, ‘…in order to achieve a satisfactory degree of harmonization and certainty, it is recommended that States make as few changes as possible in incorporating the Model Law into their legal systems.’

88TC Halliday, and BG Carruthers (n 84); TR Tomasic (n 11); D Berkowitz, K Pistor, and J Richard, ‘Economic Development, Legality and the Transplant Effect’ (2003) 47 Eur Econ Rev 165-195; and O Kahn Freud, ‘On Uses and Misuses of Comparative Law’ (1974) 37 M LR 3, 27

89Ibid

90D Berkowitz, K Pistor and JF Richard (n 88) 192. The authors notes that, ‘…. the way in which the law was initially transplanted is a more important determinant of legality…….[A] legal reform strategy should [therefore] aim at improving legality by carefully choosing legal rules whose meaning can be understood and whose purpose is appreciated by domestic law makers, law enforcers, and economic agents, who are the final consumers of these rules. In short, legal reform must ensure that there is a domestic demand for the new law, and that supply can match demand.’

91J Stiglitz (n 16); and TC Halliday, and BG Carruthers (n 84). The above situation could occur notwithstanding that the legal systems of the countries under study are based on former colonial powers and that such countries have since the mid 1980s and early 1990s embraced market economy systems.

92K Pistor (n 26)

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Instead of improving domestic legal systems standardization…may…undermine the development of effective legal systems. The reason for this can be found in two essential features of legal systems. First, the interdependence of legal rules and concepts that comprise a legal system and second, the fact that law is a cognitive institution. The interdependence of legal rules means that there are only a few rules that can be understood and applied without reference to other legal rules or concept. This implies that standardization rules can be realised and enforced only if other bodies of law already exist in the standard receiving legal system otherwise additional law reform efforts must be pursued. Without ensuring complementarities between the new law and pre-existing legal institutions, harmonization may distort rather than improve the domestic legal framework

The notion that law is cognitive institution means that for law to be effective and actually change behaviour, it must be fully understood and embraced not only by law enforcers but also by those using law…The external supply of best practice law…sterilizes the process of lawmaking from political and socio-economic development. It therefore distances it from the process of continuous adaptation and innovation……..

Moreover, the imposition of rules from the outside - not a new experience for most developing countries as the history of colonization exemplifies may also lead to domestic resistance – may also lead to domestic resistance.93

Accordingly, an effective legal reform strategy might need to include measures that would avoid the transplant effect.94 Thus, overcoming this risk would necessarily require an endeavour that takes into account knowledge of not only the foreign law on basis of which the global norms and standards were derived, and its corresponding social and political contexts among others, but also knowledge of the local contexts and the scope of the demands of the countries that contemplate reform by using the standards.95 The question is whether and to what extent the assessments conducted by the multilateral institutions address such crucial aspects.

The standards’ assessments undertaken and published reveal some weaknesses which have the potential of tarnishing any usefulness that the international insolvency standards might have in amelioration of domestic insolvency systems of SSA countries. As discussed above, the international insolvency standards are now among the bases, against which the multilateral institutions’ surveillance

93K Pistor (n 26) 98 and 99

94D Berkowitz, K Pistor and JF Richard (n 88 ) 186 and 192

95O Kahn Freud (n 88) 27; and D Berkowitz, K Pistor and JF Richard (n 88)

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programmes assess the extent to which a country complies with the benchmarks and advise how reform should be carried.96 It is also on the basis of such assessments that technical assistance may be extended to facilitate observance and investors may decide on whether or not to invest in a particular developing country.

Although the above shortcomings could be addressed by the assessment process and the policy recommendations resulting from the process, an examination of a handful of published reports on assessment covering insolvency systems in Africa both ROSCs and FSAP suggest that they do not characteristically provide an insight into and consideration of what is available in such countries in the context of their socio-economic circumstances.97 The following are among the outstanding weaknesses noted, especially with regard to ROSCs.

Firstly, there is neither adequate treatment of cultural and local contexts, nor a thorough consideration of the level of developments of such countries and their potential impact on the reform process. This weakness contradicts the claim by the multilateral institutions that the assessments do consider the different stages of economic development and different cultural and legal traditions across different countries.98 It also contradicts the consensus that insolvency laws ‘have to be in harmony with relevant local legal, business and cultural frameworks [among other local contexts], and as such reflect a diversity of functions, national purposes and public policy objectives.’99 For instance, although the Mauritius insolvency ROSC maintains that the existing legal framework is weak, out-dated

96Surveillances are undertaken by IMF as a part of Article IV consultations, or through joint missions with the World Bank. See IMF and World Bank (n 28); B Schneider (n 21); IMF and World Bank (n 18)

97World Bank, Report on Observance of Standard & Codes(ROSC):Mauritius 2004 (Prepared by a Staff Team of the World Bank from information provided by the Mauritian authorities) < http://www.worldbank.org/ifa/Mauritius-ICR%20ROSC.pdf > accessed 2/10/2009; World Bank, Report on the Observance of Standards and Codes (ROSC) Insolvency and Credit Rights Systems: Morocco 2006 (Prepared by a World Bank Staff Team based on information provided by the Moroccan authorities ) < http://www.worldbank.org/ifa/rosc_icr_mor_eng.pdf > accessed 2/10/2009; IMF and World Bank (n 18)

98IMF and World Bank (n 18); and IMF and World Bank (n 28)

99R Harmer (n 45) 123

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