Sydney-based Financial Restructuring and Insolvency Partners of Norton Rose Fulbright, Scott Atkins and John Martin, together with Special Counsel Rodney Bretag, are close to finalising a new insolvency and restructuring law for the Republic of Myanmar.
The team from NRF are working with the Asian Development Bank and the Union Supreme Court. Their work is focussed upon strengthening and modernising the legal and institutional framework of Myanmar’s insolvency and restructuring regime as well as undertaking associated capacity development of institutions and the legal and accounting professions to support the introduction of the new laws. The overarching objective is to create a platform that matches not only the present circumstances with Myanmar’s broader legal and commercial systems, but is also sophisticated enough to maintain its relevance into the future as Myanmar’s economy develops.
Their approach in this market-leading work is underpinned by a number of core principles. First, an effective insolvency system should match with the state’s broader legal and commercial systems. It needs to take into account the importance of Myanmar’s micro, small and medium enterprise (“MSME”) economy which plays a significant role as the employment and economic backbone of the country. The insolvency system should also maximise the value of the assets of the debtor-company and recoveries by creditors. It should offer an effective liquidation process for non-viable businesses and reorganisation of viable businesses if this will lead to a higher return to creditors. A proper balance must be made between liquidation and reorganisation, and the system must provide for an easy switch between these two options.
Over the course of 7 in-country visits, the NRF team has consulted with various stakeholders, assessed local conditions, advised on international best practice for insolvency law reform and produced both a policy report as well as a draft law and associated regulations.
Their work has coincided with their participation on two occasions, most recently on 4 May 2018 in Washington, in further developing global best practice principles through the World Bank’s Insolvency and Creditor/Debtor Regimes Taskforce.
Focus on micro and small to medium enterprise
More than most other countries, Myanmar’s economy is comprised of MSMEs – over 80% of the nation’s enterprises have less than 10 employees. In real terms, the new insolvency law will facilitate the broader economic reforms underway across the country.
To this end, the team has drafted a bespoke MSME insolvency and rescue law that recognises the importance of addressing the specific challenges that financial distress in the MSME market presents. The focus is on the preservation of value, the rescue of financially distressed businesses (rather than a liquidation action), and allowing small business entrepreneurs a fresh start where appropriate.
In drafting the new laws, these considerations have been taken into account and guidance has also been taken from international institutions and comparisons with mature insolvency laws of foreign jurisdictions. While wholesale transplantation of foreign laws is undesirable (as it ignores the cultural aspects and features that make Myanmar unique), for a country that is transitioning from a controlled economy to a market economy, importing legal concepts and structures from mature insolvency systems and international institutions has served as a useful guide for the development of a market based society in Myanmar.
More recently, governments across the world have come to realise that a more forgiving insolvency system, which supports rehabilitation of viable businesses to preserve their value, and moves away from a regime that focuses on penalising directors and stigmatising failure, can be valuable. This appreciation for corporate rescue is mainly put in motion by international financial entities and organisations such as the World Bank, the International Monetary Fund, and the United Nations Commission on International Trade Law who are committed to improving insolvency and corporate rescue systems at the global level.
Bearing this in mind, a principal feature of Myanmar’s new insolvency laws is the emphasis on corporate rescue and rehabilitation with the following characteristics:
- A corporate rescue mechanism called a “Rehabilitation Proceeding” which will be made available to all distressed companies in Myanmar, under which the management of the debtor company is given over to an independent “Rehabilitation Manager”, who takes on a managerial role and is responsible for the management of the debtor during the course of the rehabilitation procedure.
- In order to commence a Rehabilitation Proceeding, the debtor must be in a position where it cannot pay its debts when they fall due, or is at risk of not being able to do so.
- A moratorium provision will operate automatically upon the appointment of a Rehabilitation Manager while a rescue or rehabilitation plan is formulated. The moratorium may be extended by the terms of a rehabilitation plan approved by creditors and the court.
- The approval process and implementation period for the rehabilitation plan are subject to strict timelines.
- In the event that a rehabilitation plan is not approved, or an approved rehabilitation plan is not able to be implemented, there will be a conversion mechanism for the debtor to enter into liquidation.
It is anticipated that the draft law will be enacted by the Myanmar parliament in the first half of 2019.