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F INANCIAL S ECTOR F ORUM

F INANCIAL S ECTOR F ORUM. S TANDARDS FOR C REDITOR R IGHTS AND C ORPORATE I NSOLVENCY S YSTEMS. Chantilly, Virginia 20 June 2002. Gordon W Johnson The World Bank. T OPICS C OVERED. Role of Debt Resolution Mechanisms Context of the WB Principles Lessons: ROSC Pilot Program

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F INANCIAL S ECTOR F ORUM

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  1. FINANCIAL SECTOR FORUM STANDARDS FOR CREDITOR RIGHTS AND CORPORATE INSOLVENCY SYSTEMS Chantilly, Virginia 20 June 2002 Gordon W Johnson The World Bank

  2. TOPICS COVERED • Role of Debt Resolution Mechanisms • Context of the WB Principles • Lessons: ROSC Pilot Program • FY03 and Beyond

  3. DEBT RESOLUTION MECHANISMS • Foster commercial confidence and predictability • Markets more accurately price, manage, resolve default risk • Establish a predictable backdrop for negotiations • Reduce asset deterioration and promote credit access • Safety valve for corporate distress • Salvage viable businesses and preserve jobs (rescue) • Efficient transfer of assets (bankruptcy) • Vital to balance in commercial relationships • Encourage responsible corporate behavior & governance • Penalize owners and managers who lack financial discipline or behave irresponsibly

  4. INT’L FINANCIAL ARCHITECTURE: THE GLOBAL AGENDA INTERNATIONAL MEASURES NATIONAL MEASURES • Improve transparency and disclosure by all market participants • Remove regulatory bias in int’l lending • Support better risk management by highly leveraged institutions and counter-parties • Develop, disseminate and support implementation of int’l standards and codes • Enhance surveillance • Increase private sector involvement in crisis prevention • Mobilize official contingent financing • Improve transparency of domestic markets • Strengthen financial systems and related underpinnings through implementation of international standards • Strengthen debt management • Establish appropriate and consistent exchange rate regimes • Establish appropriate sequencing and safeguards for capital account liberalization • Strengthen social safety nets PREVENTION CRI SI S RESOLUTION • Strengthen capacity and instruments for official financial support • Establish framework and modalities for private sector involvement in crisis resolution • Establish safeguards and policies for lending into arrears • Provide effective bankruptcy and workout mechanisms • Support financial and corporate restructuring • Mitigate social consequences of crises

  5. CORE STANDARDS: ASSESSMENT AREAS - Data Dissemination (IMF) - Fiscal Transparency (Basle Core) - Public Debt Management (IMF/WB) - Monetary and Financial Policy - Banking Supervision (Basle Core) - Insurance Supervision (IAIS) - Security Regulation (IOSCO) - Payment and Settlement (CPSS) - Corporate Governance (OECD) - Accounting & Auditing (IAS/ISA) - Insolvency & Creditor Rights (WB) - Anti-Money Laundering (IMF/WB)

  6. CONTEXT FOR CREDIT ACCESS • Credit is lifeblood of modern commerce • Depends on willing lenders and lending options • Reasonable and manageable repayment risk • Increasing significance of collateral • Reliable creditor enforcement mechanisms essential • Increasing significance of collateral • Collateral provides greater assurance of recovery • Ineffective security leads to underutilized asset values • Broadest range of security (movable and immovable) • Reliable and fair legal mechanisms • Legal, Institutional and Regulatory Frameworks • Provide a predictable backdrop for resolution

  7. Credit Assessment Information Identify Security Negotiation Contracting Registry Monitoring RISK ASSESSMENT CONTINUUM Enforcement & Insolvency Credit Culture Financial Distress • Risk Assessment • Information • Identify Options • Negotiation • Amend Contracts • Possible action • Monitoring • Enforcement • Formal Insolvency • Liquidation, Rescue • Security Rights • Information • Negotiation (Plan) • Implementation • Monitoring

  8. Credit Protection Collateral Systems Registries (Notice) Transparency [Enforcement Procedures] [Public Auction & Collections] INSOLVENCY STANDARDS: AREAS COVERED Credit Access Credit Management Credit Resolution • CRM Practices • Asset Resolution Devices • Legal Framework for Workouts • Tax & Other Laws (ie, Tax treatment of NPLs) • Corporate Exit Mechanisms • Liquidation • Rehabilitation • Quasi-formal restructuring • Implementation • Institutional • Regulatory

  9. CONTEXT FOR INSOLVENCY SYSTEMS Monetary & Fiscal Governmental & Political Tax & other laws State Mortgage laws Secured Creditors Bank Regulators Collateral laws Creditors Contract/Commercial Environmental, Company, Tariff & others Employees Labor laws Regulatory Enterprise Legal Company laws Professionals Insolvency System Shareholders Securities laws Administrative Directors etc Others laws Institutional Cultural & Social Economic & Commercial Courts Bankruptcy Commercial & Civil Agency Accounting & Auditing Corporate Governance

  10. PRO-CREDITOR vs PRO-DEBTOR

  11. PILOT ROSC: Lessons & Applications • Total: 12-13 -AFR, EA, ECA, LAC, MNA, SA • 6 Linked to FSAPs: Croatia, Czech Republic, Lithuania, Russia, Slovakia, Ukraine • 6 Led/Linked to Technical Assistance: Argentina, Brazil, Czech Republic, Lithuania, Slovakia, Turkey • SAL Programs: Turkey (PFPSAL 2), Slovak (EFSAL) • Crisis Management: Argentina – Workout framework • FY03: 15 Countries, Launch Global FIRM

  12. FORUM INSOLVENCY RISK MANAGEMENT Global FIRM(Partners) EU, IMF, OECD, OHADA, UNCITRAL ADB, AfDB, ALOS, EBRD, IADB, IFC INSOL, IBA (J), IPBA, IABA, Donors Secretariat World Bank Research & Training Center World Bank Regional Dialogue Networks Global Insolvency Law Database • Knowledge Dissemination • Capacity Building/Distance Learning • Transparency AFR EAP ECA LAC MNA SA FIRST Technical Assistance

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