164 posts categorized "Comparative & Int'l Perspectives"

World Bank Group's Proposals on Small Business Insolvency

posted by Jason Kilborn

At long last, the World Bank Group's insolvency and debt resolution team has finally released to the public its report on the treatment of the insolvency of micro-, small-, and medium-sized enterprises, Saving Entrepreneurs, Saving Enterprises : Proposals on the Treatment of MSME Insolvency. The team worked for over a year on this report, concluding with a meeting of its Insolvency & Creditor/Debtor Regimes Task Force in May in Washington, D.C., where the report and its proposals were vetted. There was a surprising degree of consensus on the proposals developed here, and the final version reflects a fairly widely shared viewpoint on three key points.

Continue reading "World Bank Group's Proposals on Small Business Insolvency" »

Passing of Ian Fletcher

posted by Bob Lawless

It is with great sadness that the news reached my desk of the passing of Professor Ian Fletcher of University College London. Ian was a leading international insolvency expert, well known to all of us at Credit Slips, and we extend our condolences to his family and friends. Professor Bob Wessels has a tribute.

Combatting Fear of Abuse--A Sisyphean Task?

posted by Jason Kilborn

Over the past few weeks, at conferences with judges and policymakers in Varna (Bulgaria), Seoul, and Beijing, I've been confronted with a surprising degree of skepticism about personal insolvency systems and fear of opportunistic individuals abusing the ability to evade their debts (especially while hiding assets). I've pointed out the interesting progression identifiable in Europe in recent years of a marked relaxation of such fear of abuse, especially in places like France and most recently Slovakia, which have gone all the way to adopting a very US-like open-access system to immediate discharge. For the real skeptics--and they are numerous in Bulgaria and China, both of whom are considering adopting their first personal insolvency laws--these arguments seem to fall on more or less deaf ears. Detractors put me in a no-win situation by offering one of two rejoinders: (1) the incidence of discovered abuse is low in these systems because debtors are crafty or anti-abuse institutions are weak, or (2) anti-abuse institutions like the means test and restrictive access hurdles are successfully dissuading abusers from seeking access, so we need more--not less--of this kind of effort (which I've criticized as wasteful, unnecessary, and counterproductive). A common third response is the classic "we're different" position--that is, any comparative empirical evidence from elsewhere is irrelevant to the new, entirely unique context of [insert skeptical country's name here].

Continue reading "Combatting Fear of Abuse--A Sisyphean Task?" »

Please support empirical study of decision making in business insolvency

posted by Jason Kilborn

Leiden University in the Netherlands has established an impressive strength in insolvency law studies. For example, following his retirement, the eminent Bob Wessels left his massive collection of literature on the subject to a foundation, which permanently lent the collection to the school as the Bob Wessels Insolvency Law Collection. Credit Slips readers can support the efforts of Leiden researchers without parting with their libraries by simply responding to a 15-minute online questionnaire. Niek Strohmaier is a Ph.D. candidate at Leiden conducting a study on judgment and decision making within the areas of business rescue and insolvency law. As he puts it, "We offer a novel perspective on these fields by utilizing the interdisciplinary nature of our research team and by adopting a social sciences approach with empirical research methods." If there's one thing that Credit Slips can rally around, it's empirical research! So I'm hoping we can show Niek our community spirit by responding to his survey at this link (http://leidenuniv.eu.qualtrics.com/jfe/form/SV_51GewBINfBAyfzv). The survey has received a good response from the professional membership of INSOL Europe, but I hope we can supercharge this qualitative data collection with responses from North America and elsewhere, as well. Thanks for your help!

Orwellian Debt Collection in China

posted by Jason Kilborn

Trying to get a handle on the potential for a workable personal bankruptcy procedure in China, I've repeatedly encountered evidence that the most important element might be lacking: attitude. Successful personal insolvency systems around the world differ in design and operation, but the system architects and operators generally share a sense that default is an inevitable aspect of consumer/entrepreneurial risk, and mitigating the long-term effects of such defaults is good for debtors, creditors, and society. I don't get the sense, based on my admittedly superficial outsider perspective, that this foundation is ready in China. Indeed, quite the opposite. 

For example, for the past few years, the Supreme People's Court has run a "judgment defaulter's list" of individuals who have failed (been unable?) to satisfy judgments against them. More than 3 million names were on this list already by the end of 2015, and getting on this list means more than just public shaming; it's also a "no-fly" list, preventing defaulters from buying airplane tickets, in addition to a "no-high-speed-train" and "no-hotel-stay" list, and also a "no-sending-your-kids-to-paid-schools" list. By mid-2016, about 5 million people had been preventing from buying these services in China as a result of being on the list. This initiative is just the start of a planned "Social Credit System," which will aggregate electronic data (including not only payment history, but also buying habits, treatment of one's parents, and who one's associates are) to produce a "social credit score" for all individuals. This score will affect all manner of life events, such as access not only to loans, but also to housing access, work promotions, honors, and other social benefits. The potential problems with data integrity (including inaccurate data), among many other challenges, are discussed in this fascinating paper by Yongxi Chen and Anne Sy Cheung of the Univ. of Hong Kong

Continue reading "Orwellian Debt Collection in China" »

New Saudi Bankruptcy Law ... A Boon for SMEs?!

posted by Jason Kilborn

Saudi Arabia's King Salman has approved a new bankruptcy law. {Download Saudi BK final 2-2018} Commentators have heralded this new law as a boost to economic reforms, in particular to the SME sector, but I have some serious doubts about this. A member of the Shura Council, the King's advisory body, is quoted in one report as explaining "[t]he idea is to simplify and institutionalise the process of going out of business so new organisations can come in." That latter part--new businesses coming in--requires individual entrepreneurs, either the one whose business just failed or new ones, to embrace the major risks of starting a new venture. In either event, a crucial aspect of an effective SME insolvency law, and I would argue THE most crucial aspect, is a fresh start for the failed entrepreneur (and a promise of such a fresh start for potential entrepreneurs). This fresh start is promised and delivered most effectively by provision conferring a discharge of unpaid debt. The new Saudi law all but lacks this key provision. Article 125 on the bottom of page 50 is quite clear about this: "The debtor's liability is not discharged ... for remaining debts other than by a special or general release from the creditors." It seems highly unlikely to me that creditors will offer such releases with any frequency. Yes, the new law provides a useful framework for negotiating restructuring plans, and the Kingdom deserves praise and respect for finally adopting such a measure. But the lack of a law- imposed discharge following liquidation when creditors are not willing to agree is not a foundation for a thriving SME recovery (though I understand and respect the reason why the Saudi law lacks an imposed discharge). Most SMEs are not enterprises--they are entrepreneurs; they are people, not businesses. Leaving these people to bear the continuing burden of unpaid debt does not, in my mind, reinvigorate failed entrepreneurship or entice others to join the movement. I'm afraid the effects on the SME sector of this law will be muted at best. I hope I'm wrong. 

Comparative Insolvency Conferences of Note

posted by Jason Kilborn

I thought Credit Slips readers might be interested in using some holiday down-time to catch up on a couple of recent comparative insolvency conferences with particularly cutting-edge presentations, some of which are or will be available for viewing online (and many of the papers are available on SSRN or elsewhere).

First, on Nov. 23-24, the Notary College of Madrid offered its spectacular hall to host an international conference on consumer credit information privacy and regulation (day one) and the treatment of insolvency for SMEs and consumers (day two). The second day offered a particularly interesting presentation by one of the leaders of the EU Commission's initiative for a Directive on harmonization of European laws on preventive restructuring and second chance discharge relief (followed by a bit of constructively critical commentary by an American who fancies he knows something about European personal insolvency). Recordings of the entire conference were just posted to YouTube--most of the recordings are in Spanish, but the EU Directive and critical commentary presentations are in English after a short Spanish intro (nos. 8 and 9 of the 10 recordings). Congratulations to the architects of this fabulous event, who also made impressive presentations: Matilde Cuena Casas (Univ. Complutense de Madrid), Ignacio Tirado Martí (Univ. Autónoma de Madrid), and David Ramos Muñoz (Univ. Carlos III de Madrid).

Second, the following week offered a special, rare treat with the conference, Comparative and Cross-Border Issues in Bankruptcy and Insolvency Law, hosted by the Law Review of the Chicago-Kent College of Law. The line-up of panels on both comparative and cross-border issues was particularly impressive, and we were treated to a keynote by Jay Westbrook refining his latest thinking about cross-border coordination. The conference was live streamed, and the recordings are promised in the near future, but for now, the livestream page still has (scroll down to Day 1) the recoding of Adrian Walters's terrific paper on restrictive English interpretation of the notion of international cooperation. Again congratulations to the organizers of this fabulous event (who, again, gave very impressive presentations of their own): Adrian Walters, Chicago-Kent College of Law, and Christoph Henkel, Mississippi College School of Law.

Old-Fashioned Insolvency Policy in India

posted by Jason Kilborn

It seems to me a sign of serious regulatory dysfunction when a government expressly uses bankruptcy law as a means of collection, rather than rescue or at least collective redress, with an aim to treating economic stagnation. I've seen several stories recently like this one, touting the new Indian insolvency law and government regulators' strategy of putting pressure on banks to use involuntary insolvency (creditors' petitions) to clean up the NPL problems of a series of major industrial firms. The notion that insolvency law is about collecting NPLs seems at best anachronistic, and likely at least a sign of major dysfunction in other law or policy.

The right way for one lender (including the government tax collector) to collect one defaulted loan is to engage an ordinary collections process (judgment enforcement)--which itself might well result in the sale of the company, as envisioned in the story linked above. Creditor-initiated bankruptcy/insolvency proceedings should be the nuclear option, engaged only when creditors are worried that the debtor's assets will be dissipated by other enforcing creditors before the later-in-time ones can reach the ordinary enforcement stage. Such cases should be rare. The primary users of modern insolvency law should be debtors responding to positive incentives to seek an orderly opportunity for a global renegotiation of their debts, or an orderly way for the governors of those companies to liquidate and redeploy the assets of their companies more effectively--avoiding in the process a protracted battle about their own liabilities as personal guarantors and/or as directors liable for "insolvent trading." 

The subtext of the stories I've seen about the new Indian insolvency law seem to be (1) it does not provide an adequate incentive for debtor-companies to seek either rehabilitation or orderly liquidation when they realize they're in obvious financial distress, (2) the ordinary collections apparatus in India must be totally dysfunctional if banks have no incentive to engage it to deal with their NPLs, (3) the new insolvency law also provides an inadequate incentive for creditors to engage it to seek collective redress, since the government has to put pressure on banks to do so, and (4) all of the work on proper, modern insolvency policy in recent years by UNCITRAL, the IMF and World Bank, and many, many others has been lost on Indian regulators. Especially in developing nations like India and South Africa, the battle over the appropriate, modern role of insolvency law as debtor-initiated rescue or exit, as opposed to old-fashioned creditor-initiated collections, continues to rage.


Dana Gas and an Existential Crisis for Islamic Finance

posted by Jason Kilborn

IslamicartThe very foundations of the Islamic finance world were shaken a few weeks ago when Dana Gas declared that $700 million of its Islamic bonds (sukuk) were invalid and obtained a preliminary injunction against creditor enforcement from a court in the UAE emirate of Sharjah. Like Marblegate on steriods, Dana made this announcement as a prelude to an exchange offer, proposing that creditors accept new, compliant bonds with a return less than half that offered by the earlier issuance.

Dana shockingly claimed that evolving standards of Islamic finance had rendered its earlier bonds unlawful under current interpretation of the Islamic prohibition on interest and the techniques Dana had used to issue bonds carrying an interest-like investment return. I had expected to read that Dana had used an aggressive structure like tawarruq (sometimes called commodity murabahah) that pushed the boundaries of what the Islamic finance world generally countenanced, but no. The structure Dana had used was totally mainstream, a partnership structure called mudarabah. Dana asserted that the mudarabah structure had been superseded by other structures, such as a leasing arrangement called ijarah, though in Islamic law as in other legal families, there are often multiple permissible ways of achieving a goal, not just one. And when an issuer prepares an Islamic finance structure like this, it invariably gets a sign-off from a shariah-compliance board of respected Islamic law experts (sometimes several such boards). For Dana Gas to suggest that its earlier board was wrong to the tune of $700 million, or worse yet that Islamic law had somehow changed in a few years through an abrupt alteration of opinion by the world of respected Islamic scholars is ... troubling.

Continue reading "Dana Gas and an Existential Crisis for Islamic Finance" »

New Museum of Failure

posted by Jason Kilborn

A new Museum of Failure in Sweden stands as a tribute to the notion that failure is just an opportunity for learning, powering growth and future innovation. I thought no group could appreciate that as much as Credit Slips readers. Europe is still in the process of shaking off its ages old stigma with respect to failure, especially in the context of individual entrepreneurialism. It's amazing how difficult real reform of both business and personal insolvency law has been and continues to be there (and elsewhere outside the Anglo-American world). I've long thought that shaking off these hangups, embracing failure, and facilitating fresh innovation are among the core attitudes that have made America great. Three cheers for failure!

Proposed New EU Insolvency Directive

posted by Jason Kilborn

The European Commission has just released its proposal for another Insolvency Directive, finally tackling the very sticky issue of substantive harmonization. I had hoped the Directive would push Member States toward greater harmonization of their consumer insolvency regimes, and I even made some proposals for principles and rules for such a move, but because cross-border lending to individuals for personal consumption remains quite limited in Europe (only about 5% of total household lending), the Commission concluded that "the problem of consumers' over-indebtedness should be tackled first at national level." (p. 15)  Nonetheless, the Commission's explanatory memo heartily endorses applying the principles on discharge in this new Directive (principally, providing a full and automatic discharge after a maximum 3-year process) to all natural persons, both entrepreneurs and consumers.

As to the former, though, the proposed Directive virtually shoves European national insolvency law in the direction of US law--for better or worse. The primary thrust is to encourage a rescue climate through more robust "preventive restructuring frameworks." Read: Chapter 11. The characteristics of such frameworks include leaving the debtor in possession of its assets and affairs, staying enforcement proceedings that might interfere with restructuring negotiations, mandating disclosures for proposed restructuring plans, facilitating plan adoption by creditors in classes, including a cram-down option and an explicit absolute priority rule (pp. 30, 38, not mentioning a new value corollary ... though not using the troublesome phrase "on account of its claim" in the definition of the absolute priority rule), and protecting new (DIP) financing. The importance of institutions is highlighted, with mandates concerning the expertise and training of judges, administrators, and practitioners. A few Credit Slips contributors in particular might be interested in the Commission's comment that "It is important to gather reliable data on the performance of restructuring, insolvency and discharge procedures in order to monitor the implementation and application of this Directive." The proposal thus includes detailed rules on data to be collected using standardized templates for easy comparison of empirical results across countries.

My sense is that this proposal will face some substantial political opposition, but the Commission has an impressive track record on getting its proposals adopted by the Parliament and Council. If and when this thing is adopted, I'm sure European authorities will have no trouble finding US restructuring professionals eager to volunteer to visit Europe to provide the type of training to judges, administrators, and practitioners mandated by this Directive. Put my name on the list!

Slow start for personal bankruptcy in Russia

posted by Jason Kilborn

After focusing on the substance of personal bankruptcy laws around the world for years, I'm now convinced that I should instead have been focusing on institutions and procedure. Reports of the first year of the Russian personal bankruptcy process convince me further. In a paper anticipating the new law, I predicted potential process hangups, but I badly underestimated the degree to which procedural complications would waste time and resources and undermine the system's new effectiveness. I plan to look more closely at this in the future, but for now, one statistic reported in the press tells it all: In the first full year of the new Russian law's effectiveness, of the 33,000 individual bankruptcy petitions filed, only about 15,000 have been admitted into the procedure, and of these, only about 500 have been fully processed. Debtors' errors in filling out the new paperwork doubtless contributed to this slow start, but I suspect the courts are just not embracing the new process yet, and admitted cases are being drowned in a swamp of pointless procedural formalities. A simplified procedure for these individual cases is being discussed already, but why couldn't this lesson have been learned at the outset? There is simply no need in the personal bankruptcy context for complex procedures designed for high-asset business cases. Decades of experience elsewhere have proven this time and again. And once again we see, as Margaret Howard observed in one of my favorite articles years ago, lighthouse still no good.

New Emirates Personal Bankruptcy Law to Exclude Consumers

posted by Jason Kilborn

The government of the United Arab Emirates has announced that it is working on a personal insolvency law (to accompany an imminently forthcoming business restructuring law). That's the good news. The bad news is that the personal insolvency law is to be designed exclusively for the benefit of small business people and others (shareholders, directors, employees?) with debt distress related to business. As a news report incisively observes: "So while an owner of a small business whose company cheque bounces because of lost business will receive protection under the new law, an individual whose rent cheque bounced because of short-term cash flow problems, will not."

This is a disappointing and short-sighted approach. While small business absolutely contributes to the economy and warrants insolvency relief legislation, so do consumers with non-business debt. I am afraid this discrimination between business and non-business debt in insolvency legislation will be a trend in the developing world. This will set back efforts to revitalize non-fossil fuel sectors of the economy, and it will entrench great human suffering. Sad.

Harmonizing Consumer Insolvency Law

posted by Jason Kilborn

HarmonyIn contrast to the cacophony created by Brexit, EU authorities have been working for several years on a project to move toward greater harmony among the discordant insolvency laws of the Member States. Though the project is focused on business rescue and restructuring, the Commission Recommendation "on a new approach to business failure and insolvency" makes specific reference to non-business cases, as well, as "Member States are invited to explore the possibility of applying these recommendations also to consumers" (para. 15).

A fantastic conference at Brunel University London this May explored the question whether there was a need for comprehensive EU intervention in the historically national-law arena of consumer debt relief. The conference presented several instructional vignettes on the varying situations in the UK, Germany, Italy, and Greece, as well as some reflections on the very limited degree of EU involvement in ensuring "fair" consumer credit markets as a supposed bulwark against overindebtedness. The presentations at the conference vividly illustrated the weakness of this supply-side-only approach, as well as the extreme divergence among exisiting European personal insolvency relief regimes. A fascinating book published in connection with this conference's greater project nicely illustrates the messy state of overindebtedness regulation in the EU today.

All of which has me thinking about a topic that recurs in the academic debate in the US from time to time:

Continue reading "Harmonizing Consumer Insolvency Law" »

Nortel Survives (First?) Appeal -- Canadian Edition

posted by John Pottow

Unlike the bankruptcy judges in Nortel, who synchronized their trials in a landmark case of cross-border insolvency cooperation, the appellate judges run at their own speed, so results will trickle in here and there.

The Canadians got through their appeal first, and the 3-0 ruling from the panel of the Ontario Court of Appeal was rightly withering of the losing appellants.  In response to the argument accusing the trial judge of applying -- instead of the correct law of property entitlements -- his own "commercial judicial moralism," the panel had this to say on his analysis:

"Based on those facts, he concluded that a pro rata order constituted the answer to the allocation issue. The fact that the answer is also fair should not detract from the force of his conclusion."

Who said Canadians can't be snarky, or at the very least passive-aggressive?

The next stage in Canada would be the Supreme Court, which requires leave to appeal, although its grant rate is higher than the U.S. Supreme Court's cert rate.  Stay tuned!

New Saudi Restructuring Law in 2016?

posted by Jason Kilborn

SaudimoneyA pair of Squire Patton Boggs attorneys have reported that a new restructuring law may appear in Saudi Arabia next year. Their description of the current law is very lucid--one of the only such descriptions in English I've found in years of research--and their account of the proposed law is intriguing. The current Saudi law is totally creditor-oriented and limited to encouraging creditor-by-creditor settlement. This limited approach is likely driven by religious doctrinal reasons described in the sparse English language literature on Islamic bankruptcy (see, for example, my own piece on debt forgiveness in Islamic law, and a great piece by Abed Awad and Robert Michael on the contrast between Chapter 11 and the Saudi-Hanbali approach to Islamic bankruptcy). The new law will apparently change nothing with respect to individual insolvency, unfortunately. As for business reorganization, however, I was very surprised to see the suggestions in the report that this new law would (1) allow majority votes of creditors to impose restructuring arrangements on dissenting creditors, including secured creditors, and (2) a rehabilitation process would provide for a discharge of debt. This seems inconsistent with the fundamentals of Islamic law, which are "the ultimate sources of reference for ... the other laws of the State." It will be very interesting to see how the Saudi state religious authorities reconcile the proposed "modern" business rescue approach with the quite conservative interpretation of Islamic law that prevails in the Kingdom.

Saudi Riyal image courtesy of Shutterstock

Wholesale Reform of Indian Insolvency Law

posted by Jason Kilborn

IndianpiggybankOn Wednesday of this week, the Indian Ministry of Finance released a draft of a watershed Insolvency and Bankruptcy Bill, 2015. The proposed reform covers all of Indian insolvency law, both corporate and personal. A summary of the key proposals is here. While reform efforts earlier in the year concentrated on business recovery, at least 50% of this latest bill concerns a total revamp of the personal debt relief process. These provisions are long overdue. In a fabulous case study a few years ago, Adam Feibelman described both the growth of the personal lending sector in India, as well as the serious structural deficiencies of the century-old Indian regime of personal debt relief (bankruptcy). Among the biggest problems: multi-year delays as cases wind through the civil judicial system, brought on in part by excessive judicial discretion with respect to case administration, including admission of debtor petitions, stays of enforcement, and ultimate debt discharge relief. The bill makes significant progress on several fronts, though it leaves much to be desired.

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New personal insolvency laws cover (almost) all of Europe

posted by Jason Kilborn

This summer saw a flurry of legislative activity in Europe with respect to personal bankruptcy. New laws emerged in Cyprus, Romania, Hungary, and (though it is not an EU Member State) Russia. These laws differ substantially among each other and from earlier models, which will give me a lot to write about in the coming years, but it is notable that the list of non-adopters in Europe is rapidly dwindling. Only Bulgaria, Malta, and the newest EU Member State, Croatia, lack such a law, and at least in Croatia, the subject has been on the legislative docket recently. It will really be interesting to see what happens if the rest of the Balkans and Turkey are approved as the latest applicants to join the EU and fall under pressure to adopt personal insolvency regimes. Will Turkey give us the first Islamic consumer bankruptcy law? Interesting times.

Russian Bankruptcy ... and Unconstitutional Homestead Exemption?!

posted by Jason Kilborn

BankZapadnyiI've finally finished my paper on the new Russian personal bankruptcy law (comments welcome), which is slated to go into effect on October 1 of this year. One side story from that paper will give a real chuckle to lawyers from Texas, Florida, and the other states with unlimited homestead exemptions. It turns out that the Russian Constitutional Court has been battling for years with the legislature about the unlimited exemption in "residential premises"  that represent the debtor's single suitable place of permanent abode. The Court has held this unlimited exemption to be unconstitutional at least twice, in 2007 and then again in 2012, yet the legislature continues to ignore these rulings and leave the law as is.

In the context of a case involving a 900 square meter apartment, the Court in 2007 concluded that the unlimited homestead exemption "disproportionately limited the creditor's rights" and was an "unfair, inadequate, unacceptable limitation on constitutional rights" to protection from the courts (!). The Court was especially concerned that this exemption was subject to abuse by debtors who might run up debts and then invest their money in a high-value exempt home (who would do such a thing?). In the 2012 case, the Court expressed its frustration with the legislature's ignoring its multiple earlier rulings on the "arbitrary" homestead exemption. It seems to have concluded that protecting anything more than the debtor's absolute minimum subsistence living space (about 18 square meters, as I understand it) is a violation of creditors' rights.  Wow.

I seriously wonder if the Constitutional Court will strike down the new personal bankruptcy law as a violation of creditors' rights, especially because it demands (theoretically) less of debtors than most European personal insolvency regimes. Time will tell ...

Russian bank image courtesy of Marina Zezelina / Shutterstock.com

Bankruptcy in Russia, 1740-1800, and the First Non-Merchant Discharge!

posted by Jason Kilborn

Boyar creditorI discovered something surprising in my summer research on the history of bankruptcy in Russia: It seems that the first modern, court-ordered bankruptcy discharge available to non-merchant debtors appeared not in the US or England, but Russia, in 1800. I suspect the relief offered was largely theoretical, but I found it shocking and intriguing that a discharge appeared in Imperial Russian law that early on. The law will finally come full circle in October 2015, when the new Russian law on personal insolvency becomes effective. It's been a long time coming!

As in England, bankruptcy law in Russia started from a much more hostile and punitive position toward debtors. In the Charter on Bankrupts of 15 December 1740 (law no. 8300, available online here), debtors who fell into distress through no fault of their own were to be released from debtor's prison and not fined (s. 19), while debtors whose fault contributed to their downfall (e.g., by continuing to trade while insolvent) were to be fined and executed by hanging (ss. 31-32). Luckily for debtors, this law was apparently ignored in practice and was replaced in 1753 with a new law (without a death penalty) by Peter the Great's daughter, Elizabeth. 

A more radical departure from past practice appeared in the landmark Charter on Bankrupts of 19 December 1800 (law no. 19,692, available online here). This law for the first time drew a distinction between merchant and non-merchant debtors, making bankruptcy relief available to the latter in a distinct Part Two.

Continue reading "Bankruptcy in Russia, 1740-1800, and the First Non-Merchant Discharge!" »

Relief Delayed for Russian Consumer Debtors?

posted by Jason Kilborn

BlindbearI studied Russian in college because I thought a post-Gorbachev Russia was poised to become an economic superpower. I've been bitterly disappointed to see that country's leaders taking one step forward and two back for years now. The latest disappointment concerns my new academic focus: consumer bankruptcy.

First, Russian lawmakers seem to have ignored the rest of the world as they drafted a new law on "rehabilitative procedures" for "citizen-debtors." The law reflects neither direct input from international experts nor indirect analysis of the challenges and successes that dozens of other countries have encountered over the past 30 years with consumer insolvency systems. That Russia would ignore the 120-year-old U.S. consumer bankruptcy system is understandable; that it would ignore 30 years of recent trial and error in Europe and the rest of the world is ... disappointing.

Continue reading "Relief Delayed for Russian Consumer Debtors?" »

Consumer Bankruptcy with Chinese Characteristics?

posted by Jason Kilborn

Yuan trapDeng Xiaoping's famous description of the "new" Chinese development-oriented economy begs the question of what that system intends to do with the inevitable casualties of consumerism and economic development. What of the increasing number of people in danger of falling out (or who have already fallen out) of the new middle class? In contrast to 20 years of concentrated efforts to establish and reform a business insolvency regime, it looks at though China is still very far from introducing a relief mechanism for consumer insolvency. The simple basis for debtor-creditor law in China is Article 108 of the PRC General Principles of the Civil Law:  "Debts shall be paid" (also allowing for installment payments pursuant to "a ruling by a people's court").  I suspect the Chinese phrase long predates "pacta sunt servanda."

Continue reading "Consumer Bankruptcy with Chinese Characteristics?" »

Consumer Bankruptcy Circles the Globe

posted by Jason Kilborn

Peace around the worldAs of 2015, for the first time, laws providing for insolvency relief to natural persons (consumers) now form an unbroken chain around the world (at least on the land masses of the Northern Hemisphere). North America has been covered for some time now, of course, and individual debt adjustment laws have been spreading across Europe for three decades. The big missing link was Russia. On 29 December 2014, the final legislative steps were taken in the adoption of a long-pending bill to incorporate procedures for natural persons into the 2002 law "On Insolvency (Bankruptcy)". The new Russian law will become effective on 1 July 2015.

I have not had time to analyze the new law in detail yet, but it appears to provide for a liberal "fresh start" liquidation very much in line with the US approach, though with a minimum debt limit qualification of 500,000 Rubles (currently only about US$7500, but surely substantially more on a PPP basis). I understand that many Russian consumers are struggling with debts of at least this size, so it will be very interesting to see how the courts deal with the burden of this new procedure and how the process plays out, especially the provisions on suspending the liquidation proceedings if the debtor and creditors hammer out an agreed composition. I anticipate that real or imagined debtor fraud and "abuse" of this new relief process will be a big issue, and agreed compositions will be as rare as coconuts in Krasnoyarsk. We'll see.

Peace Around the World image courtesy of Shutterstock

Sign of the Times: Tightening Mortgage Rules in Europe

posted by Jason Kilborn

EuroMortgageLoanTwo stories in today's world news caught my attention because they were both related to rising consumer debt and tightening mortgage rules. 

First, Sweden is proposing a particularly aggressive approach to reducing the weight of mortgage debt on consumers' balance sheets. The new accelerated amortization rules really struck me from a comparative US perspective: Swedes borrowing more than 70% of the value of their homes would have to pay the loan down by 2% a year (that's 2% of the principal) until the LTV falls to 70%, then 1% of the principal of the loan each year until LTV reaches 50%, the desired level. Wow. In the 15 years that I've been wrestling with a variety of home mortgages, I don't think I've ever paid 2% of the principal (given the back-loaded amortization schedule of most standard US home mortgage loans). To make matters worse (better?), the Swedish central bank is also considering grabbing onto the third rail of US tax reform--reducing tax deductions for mortgage interest. These are pretty aggressive moves to cool off the mortgage market and bring down consumer leverage, and they stand in stark contrast to efforts in the US and the other country in today's news ...

Continue reading "Sign of the Times: Tightening Mortgage Rules in Europe" »

A More Ancient Household Goods Rule

posted by Bob Lawless

Courtesy of Jack Ayer, professor emeritus of law and polymathy, comes the following from the Wikipedia entry on Modigliani -- Amedeo, not Franco:

Modigliani was the fourth child, whose birth coincided with the disastrous financial collapse of his father's business interests. Amedeo's birth saved the family from ruin; according to an ancient law, creditors could not seize the bed of a pregnant woman or a mother with a newborn child. The bailiffs entered the family's home just as Eugenia went into labour; the family protected their most valuable assets by piling them on top of her.

It's on Wikipedia, so who is to dispute it?

Here Come the Tourists

posted by Stephen Lubben

This week's Dealb%k is about foreign debtors that file under the US Code, which also just happens to be the subject of a recent paper that my co-author and I have posted online.

My Worlds Collide

posted by Bob Lawless

Caterham MarussiaI am obsessively interested in two things -- bankruptcy and Formula One auto racing. I feed the first interest through this blog. The second interest is tended to by watching way, way too much Formula One on television. Indeed, the best way to wind me up is to ask me if Formula One is the same as Nascar.

This weekend, my worlds collided when two Formula 1 teams -- Caterham and Marussia (shown to the right) --were placed in administration in the U.K., a procedure akin to chapter 11. I was going to resist doing a post, but now that Pat Fitzgerald over at Bankruptcy Beat has posted a story, I feel enabled.

Continue reading "My Worlds Collide" »

Hoping in Vain for Secured Creditors to Cede Control

posted by Jason Kilborn

ISI_logo_FinalInitial results of the bargaining process in the new Irish personal insolvency system have been unsurprisingly disappointing. This is particularly true with respect to the most pressing problem for which the system was designed: bargaining with secured creditors over distressed home loans. The new system provides a framework for debtors and their secured creditors to negotiate a so-called Personal Insolvency Arrangement, or PIA, to reduce and/or otherwise restructure home loans and other secured (and unsecured) debt. Someone by the initials JK colorfully predicted in April 2012 that the new "PIA is DOA." I was wrong about this, but not too far off the mark.

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Forget Argentina: How Do You Collect from Russia?

posted by John Pottow

Never let it be said that the wheels of international justice spin quickly, but, with the pace of a Siberian jail sentence, the Permanent Court of Arbitration finally handed down its merits award in the Yukos litigation.  (For those of you not in the know, Yukos was dismantled by the Russian government, nominally as seizure for back taxes -- some levied ex post -- purportedly as an attempt to stymie the political aspirations of its principal, Mikhail Khodorkovsky.)  The decision is a doozy: a unanimous and stinging denunciation of the Russian government in this series of transactions, with such zingers as "calculated expropriation" and accusations that the governmental scheme was "devious."  The award of a cool $50 billion was far less than the plaintiffs wanted but was a record-setter for the Court.

Russia, of course, is vowing "appeal" (not quite sure to where -- strongly worded letter?), but this really means the fight now enters the collection phase.  Maybe Russia has some frigates to grab?

Here's a link to the ruling.

Who Knew Google Was a Credit Reporting Agency?

posted by Adam Levitin

You thought that Google was just a search engine.  It turns out that Google is also a credit reporting agency.  The octopus has a 9th tentacle.  Didn't see that coming. (I guess that makes it a Googlepus...) That's the implication of the European Court of Justice's ruling ordering Google to take down links to the advertisements to a foreclosure sale from 16 years ago.  

The commentary on the ECJ's Google ruling has focused on the ECJ classifying Google as a data processor, but I think the credit reporting part of the decision may be just as significant. The ruling looks a lot less radical when understood from the credit reporting perspective, although it remains a problematic ruling because it is not limited to such a context.  

Continue reading "Who Knew Google Was a Credit Reporting Agency? " »

The Latest Amendment of Spanish Insolvency Law (2 and Farewell to Spanish Guestblogging)

posted by F. Javier Arias Varona

This post will be my last one, and I would like to start it thanking Bob and the rest of the Credit Slips team for inviting me again to guest blog. I felt flattered and excited to share my experiences with Spanish insolvency law the first time, and the feeling remained throughout my second blogging stint. The experience has been so interesting (and a bit challenging) that I would not mind returning for a third time in the future.

My previous post covered the basics of the recent amendment of the Spanish Insolvency Law regarding refinancing and restructuring agreements. I left for this final post the analysis of two specific issues: judicial authorization and promotion of debt for equity agreements. The changes introduced by this amendment are, for sure, of great importance.

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The Latest Amendment of Spanish Insolvency Law (1), or a Guide to Run Away From Insolvency Procedures

posted by F. Javier Arias Varona


As I mentioned in my previous post, in the final two posts in my stint as guest blogger detailing the latest amendment of the Spanish Insolvency Law, I’ll take a break from discussing personal insolvency to focus on another current issue in Spain that very recently led to a partial amendment to the Insolvency Law: out of court refinancing and restructuring agreements. I have a personal interest in sharing the situation here in Spain because I am deeply interested in hearing comments on the main issues I identify as regards the amendment. To begin, I will briefly outline the amendment’s main features. I’ll then identify four main issues with the amendment – two in this post and two in my final post.

Continue reading "The Latest Amendment of Spanish Insolvency Law (1), or a Guide to Run Away From Insolvency Procedures" »

What Happened to Mortgage Debtors?

posted by F. Javier Arias Varona

In my first post I advanced some basic ideas on the situation of Spanish mortgage debtors. The Spanish situation following the housing crisis may be familiar to readers because it shares many of the same characteristics of problems in European countries. The U.S. media has covered these stories, for example here.

For different reasons, seemingly sociological, the situation of these debtors was a center of the Spanish discussion about the effect of the crisis on households and individuals (leaving aside unemployment, of course). Therefore, different legislative measures were adopted during these years trying to offer specific solutions to mortgage debtors. In this post I will try to outline, in a more detailed way, the present situation. 

Continue reading "What Happened to Mortgage Debtors?" »

Plain Meaning and Chapter 15

posted by Andrew Dawson

I’m on my way to the Choice of Law in Cross-Border Bankruptcy Cases symposium at Brooklyn Law School that Susan Block-Lieb mentioned in her post earlier this week, so I have Chapter 15 on the brain.

I posted earlier about a Second Circuit case that held that a debtor’s center of main interests is to be determined as of the time it files a Chapter 15 petition, instead of the time at which it sought bankruptcy relief abroad. That decision effectively opens the door for forum shopping in a way inconsistent with the Model Law.

Another recent Second Circuit decision applied a plain meaning analysis to reach a conclusion that is likewise out of sync with the purpose of Chapter 15, a decision that is likely of great interest to foreign representatives and their counsel.

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Discharge, Yes...But, How Much?

posted by F. Javier Arias Varona

In this post I will explain the extent of the discharge given to insolvent individuals under the new Spanish insolvency law. Different problems arise from the way it has been introduced, ranging from its extent to the differences depending on the nature of the debtor. As in other provisions, looking at the newly introduced discharge one receives the impression of some sloppiness in the amendment or, worse, window dressing. It is hardly believable that the discharge given could be a useful tool for individuals in difficulties, engaged in business activities or not. Some debts that should reasonably be excluded are included while others that should be rationally excluded are included.

If discharge is given, because it is the most effective way to achieve the rehabilitation of the debtor, which is the main purpose of any insolvency system for individuals (or, at least, one of the main purposes, see World Bank Report, par. 359), it should be one of its more carefully thought and drafted parts. I do not dare to decide whether it is the consequence of sloppiness or of window dressing, but the results are clearly inconvenient, in my opinion (and this opinion is shared by others, once again see CUENA, 2013).

Continue reading "Discharge, Yes...But, How Much?" »

In the Western Sky

posted by Stephen Lubben

A grand tour of several percolating global restructuring issues, including Greece, the Ukraine, TXU, and, Mark and Anna's favorite, Argentina. Over at Dealb%k.

Eligibility Conditions for Discharge Under the New Spanish Personal Insolvency Regime

posted by F. Javier Arias Varona

My previous post announced my intention to focus on the new Spanish Insolvency Law’s differences between individual debtors with or without business activities. As I mentioned, the new model clearly differentiates between these two categories of debtors in terms of discharge, offering a more Shutterstock_141822367
extended debt remission to debtors engaged in business activities. I will explain in a later post the extent of the difference. In this post, I will focus on the eligibility requirements for discharge that, once again, might lead to differing treatment among insolvent individuals.

To understand the difference, it is important to remember that the extent of the discharge varies depending on whether pre-insolvency mediation has been sought or not. Recall also that eligibility for pre-insolvency mediation is limited to individuals with business activity. Considering that the access to this mediation procedure is, in its turn, conditioned to certain requirements, the net effect is that the terms of eligibility result in a difference in the discharges individual debtors receive.

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Cooperation and Tolerance in Chapter 15

posted by Andrew Dawson

Chapter 15’s modified universalism structure requires cooperation between courts in different countries as well as tolerance for outcome differences under different bankruptcy laws. While in general it’s fair to say U.S. courts have been cooperative and tolerant, for some reason the issue of intellectual property licenses in bankruptcy brings out the worst in us.

In the appeal of Jaffe v. Samsung (the appeal of a case called In re Qimonda in the courts below), the Fourth Circuit recently held that a U.S. bankruptcy court can require a German court overseeing the liquidation of a German company to apply U.S. law when dealing with licenses of U.S. patents.

Congress is considering amending Chapter 15 to mandate a similar  result through the proposed Innovation Act, which would add the following language to Section 1522:

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Bernie Madoff, Haven Jurisdiction, and the End of COMI?

posted by Andrew Dawson

The liquidation of the largest Madoff feeder fund, Fairfield Sentry, recently made a major mark on Chapter 15 of the Bankruptcy Code. The lynchpin of Chapter 15 (and the Model Law on Cross-Border Insolvency) is the ability to locate a debtor’s center of main interests (COMI). If a debtor files for bankruptcy in the location of its COMI, then it is entitled to certain automatic protections from ancillary proceedings in other countries, e.g., the imposition of the automatic stay to bar all collection activities.

Shutterstock_170061494Fairfield Sentry is being liquidated in the British Virgin Islands, its place of incorporation. Prior to its liquidation, its day-to-day operations were conducted in New York. When the Madoff scheme imploded, Fairfield's shareholders commenced a liquidation proceeding in the BVI and all operations in New York ceased. Roughly a year later, the BVI liquidators filed a Chapter 15 petition in the New York bankruptcy court, arguing that the debtor’s COMI was in the BVI.

About four years ago, I predicted that following the Bear Stearns decision, courts would no longer find a debtor’s COMI to be in a haven jurisdiction.  Haven incorporated companies do not conduct business there, and thus in no way could they be said to have a center of main interests there based solely on their place of incorporation. The Second Circuit's recent decision in In re Fairfield Sentry Ltd.,  however, proves that prediction flat wrong.

Continue reading "Bernie Madoff, Haven Jurisdiction, and the End of COMI?" »

Chapter 11 in the UK

posted by Stephen Lubben

So Business of Fashion points to a story on the Independent's web page, wherein a fashion designer calls for the adoption of something like chapter 11 in the UK. While chapter 11 debtor advocates are few and far between in the US, the motivation in this case comes from the designer having lost control of his business when his lender took control and sold the operation to a private equity fund.

My knowledge of British fashion pretty much starts and ends with Turnbull & Asser, so click on the links above if you want the juicy details.

My question is whether chapter 11 would have achieved what the designer thinks it would have.  I have doubts.

Namely, because chapter 11 as practiced today is so heavily controlled by senior lenders, I'm not sure he would have had too much more time to get his house in order here in the U.S. either. You basically have to work with the senior lender – who often becomes the DIP lender – or else. And the story suggests an inability to do that.

Debtor, What Debtor?

posted by F. Javier Arias Varona

The recent World Bank Report on the Treatment of the Insolvency of Natural Persons  highlighted in its first pages (13 and ff.) the alternatives regarding which debtors to be include in this special regime. Although the solutions to this question are not the same among different countries, the problem is identical: whether to include persons without any business activity—that is, “pure” consumers—or to limit its particular provisions to individuals engaged in business activity.

Although it has different grounds, the discussion reminds me of the classic insolvency/bankruptcy problem of limiting these proceedings only to businesses. As many of the readers know, this was a classical question when the old insolvency and bankruptcy procedures were part of a special set of

Personal insolvencies Spain 2004-2013
Nr. of personal insolvencies and debtor condition. Spain

norms for businesses (for instance, the mandatory accounting or a special public register). Seeing this question arise again in the context of personal insolvency brings back memories of the good ol’ times when I started studying our old quiebra and the discussions on the nature of the debtor and his eligibility for that procedure (a problem usually present in the old spanish suspensión de pagos). To avoid nostalgia for those times, and for the sake of our readers, I’ll turn my eyes to the present. How has the amendment of the Spanish Insolvency Law dealt with the problem of the nature of the debtors?

Continue reading "Debtor, What Debtor?" »

Spain, Six Years Later

posted by F. Javier Arias Varona

First of all, I would like to thank the Credit Slips team and, in particular, Bob, for hosting me here again. I guess that after six years, memory is weak, and it is easier to believe that I could have something interesting to share with their readers. I hope that, at least, my posts will help to understand the present situation of Spanish Insolvency Law as regards personal bankruptcy. The latest amendments are said to be a dramatic change in our system. My personal view, however, is not so optimistic, as it looks more like window dressing.

Six, almost seven years ago, I wrote here:

The situation described above could change somehow, as the increment in individuals' indebtedness and the eventual problems faced in case of an economic downturn could push politicians to pass a law for consumer bankruptcy or a reform in the insolvency law. But if it were the case, the discussions will probably focus on mortgages, as it can be clearly seen in how trade unions or consumer associations speak about this question right now. That situation will undoubtedly be a test for the bank and credit industry power in our society.

What happened since then?

Continue reading "Spain, Six Years Later" »

The New Irish Split Mortgage Solution for Underwater Homeowners

posted by Jason Kilborn

This just in from Ireland:  A large mortgage bank there, AIB, has agreed to a plan to split some mortgages into a "good" tranche, equal to 80% of the current market value of the home (forgiving the other 20% of that tranche) and another, "bad" tranche equal to the remaining, underwater portion of the mortgage loan. The first tranche will be serviced regularly, vastly reducing the monthly payments of eligible borrowers. The second tranche will be "warehoused," not serviced at all and lying dormant, interest-free, for some period of years. There are provisions for offering homeowners incentives to pay down the remaining balances quickly, especially if their financial situations improve unexpectedly.

Sounds like just the type of creative solution the world has been looking for. Alan and other experts on these issues may see some hidden traps that I don't (perhaps strict eilgibility requirements, which are not reported in the story I saw), but this struck me as quite good news on the "actually looking for solutions" front.

Evaluating the First Official Irish Debt Settlement Arrangement (DSA)

posted by Jason Kilborn

DebtSettlementAgreementA headline about Ireland's new personal insolvency relief system crows, "Most of borrower's debt written off in first deal under new insolvency regime." I thought, "Great news!"  Both that the new system is up and running, and that creditors are already agreeing to relief, which I had thought earlier was extremely unlikely.

Then I read the details. "Most" is quite a relative term. It turns out that creditors agreed to write off 70% of a reported "unsecured debt for a six figure sum." In other words, the debtor had agreed to pay creditors a 30% dividend. As readers of this blog will know, that's an extraordinary dividend. Most consumer bankruptcies around the world offer creditors zero or close to it, and even payment plans tend to offer in the single-digit range.

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Consumer Bankruptcy Law Poised to Circle the Globe

posted by Jason Kilborn

MoneyGlobeIf the Russian Duma adopts the pending consumer bankruptcy bill, it will fill in the final (very large) link in an unbroken chain of countries circling the globe who have adopted a debt relief law. No country seems to have taken this step as an early planning measure. Only the impeding doom of a huge credit bubble or, more likely, the aftermath of the bursting of such a bubble has spurred lawmakers to action. Russia seems perfectly poised to follow that path.

First regional banks and credit reporting agencies and now the Central Bank have begun to sound alarm bells about the rapid rise of consumer (over)-indebtedness in Russia. According to a study of credit reports from summer 2013, the number of consumer borrowers with five or more loans increased to nearly 20% in 2012, with average debt mounting to over US$15,000 (average annual income in Russia is only US$7500). In only the first nine months of 2013, consumer lending rose nearly 40%, and about 8% of those loans are already non-performing (an increase of about 33% in NPLs from the beginning of 2013). Standard & Poor's expects Russian consumer credit to expand another 30% in 2014.

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Debtors' Prison in the West?

posted by Jason Kilborn

DebtorprisonI've been corresponding with an analyst in a country that still jails people for unpaid general debts. The question posed to me, and which I pose to Credit Slips readers, is "can I find statistics of similar imprisonment for debt in Western countries like the US, Canada, and Europe?"

Now we're not looking for accounts of imprisonment for failure to pay specific debts like child support, or for contempt for failure to respond to a judgment debtor examination bench warrant--this is a related but different problem, which has been the subject of a great FTC report. And we're not looking for stories of indigent inmates being re-imprisoned for unpaid criminal fines and "user fees," another problem which has also been the subject of several shocking ACLU reports. And we're not looking for references to rogue judges who violate their citizens' constitutional rights to freedom from imprisonment for debt, though again, we know such problems exist in the US and elsewhere.

The question concerns only standard imprisonment for general debt. My strong sense is that no such statistics exist because no Western country does such things any longer. I hope no one can point out that I'm wrong, but if so, please do let me know in the comments.

On a related note, if anyone knows of statistics on revocation/suspension of driver's licenses (and the like) for failure to pay general debt (again, not for specific debts, like child support, parking or speeding fines), I'd love to hear about that, as well.


Imprisonment photo courtesy of Shutterstock

Banks Fighting New Irish Insolvency Service Before It Starts

posted by Jason Kilborn

ISI_logo_FinalOn Monday, the new Insolvency Service of Ireland will begin taking applications from overindebted Irish consumers seeking relief under the new debt relief law. Already, Irish banks, who received a huge government bailout, are scurrying to deploy scare tactics to deter consumers from seeking relief. According to one report, a major Irish bank has sent letters to distressed customers warning that relief under the new law requires "continuous review and any increase in income would be included under the [relief] scheme." Also, debtors seeking relief under the new law are "subject to the ISI [expense] guidelines, which are quite severe. ... These place restrictions on all spending, ban a second car and holidays, and only allow private healthcare in exceptional circumstances." In fact, anyone familiar with "means testing" and other budgeting practices in world consumer bankruptcy laws would be quite impressed with the Insolvency Service's new expense guidelines, which are sensitive, flexible, and reasonable.

The banks' scare tactics are particularly odious in ligth of the fact that the banks, predictably, have opposed all efforts to implement reasonable concessions voluntarily to turn around the horrible mortgage mess the country is in. The Central Bank has all but ordered the major Irish mortgage banks to implement long-term solutions, rather than simple stop-gap measures of interest reductions and temporary payment holidays, but the banks are not budging. Where have we heard this before (here, here, and especially here)? Will regulators never learn?

The Central Bank may have the last say here, as it is reportedly threatening to force banks to make special provisions (beefed up loss reserves?) to respond to the continuing risks related to distressed mortgage debt remaining on the banks' books. This seems like the sort of incentive that might "nudge" the banks in the right direction--do a deal that implements relief, or set aside special reserves if you refuse to do so, but acknowledge and deal with the problem one way or another. Color me skeptical that the threat will materialize or, if it does, that the banks won't figure some clever way to evade any thoughtful and effective solution.

Update:  In case there was any lingering doubt, the CEO of Bank of Ireland (a private bank) recently told the Irish legislature that engaging with distressed mortgagors to strike debt adjustment deals is “not a policy of the bank.” Falling back on the same, tired old excuse, he claimed that any debt forgiveness deal would impose costs on the bank. The now well-established notion that these losses are already baked into the cake is either lost on people like the BofI chief, or they're playing a rhetorical game with legislators.

Buying Hope

posted by Melissa Jacoby

NumbersThose interested in The Stakes of Design back in April may appreciate Why We Keep Playing The Lottery. Thanks to The Morning News for alerting readers to the article, and thanks to author Rosecrans Baldwin for co-founding The Morning News, and . . . that's enough.

Numbers image courtesy of Shutterstock

Earlier discharge for German debtors ... but not many

posted by Jason Kilborn

PiggybankemptyAfter years of wrangling about the details, the German legislature has finally approved a reform of the consumer provisions of the Insolvency Act (InsO). The only notable change is a reduction in the so-called "good behavior period"--that is, the time during which the debtor is supposed to be devoting all disposable income to creditors (or looking for work). It started in 1999 at 7 years, reduced in 2001 to 6 years, and as of 1 July 2014, it will be halved in some cases to 3 years.

But not so fast! The only debtors who can get out of jail in three years are those who can (i) pay all of the adminstrative costs of their insolvency case, and (ii) pay creditors a minimum dividend of 35% of their claims. This minimum dividend was 25% for most of the discussion period of the reform bill, but it was increased to 35% at the eleventh hour.

Continue reading "Earlier discharge for German debtors ... but not many" »

Russian Courts Battling For Authority Over Consumer Bankruptcy

posted by Jason Kilborn

Polar_bear_brawlIn Russia, a debate is raging over which courts should administer consumer bankruptcy cases, the specialized commercial courts or the courts of general jurisdiction. The Russian commercial courts (Arbitrage courts) currently exercise jurisdiction over bankruptcies of individual small business people, as well as over cases involving artificial legal entities like corporations. Logically, then, in the current bill that would finally expand the Russian bankruptcy system to provide relief to consumers, the Arbitrage courts would handle such cases.

Oddly, President Putin in March issued an edict strongly suggesting that the bill be amended to assign jurisdiction to the general courts. The Supreme Court had already come down solidly on the side of the generalist courts, and in April, it threw its support behind Putin’s edict by introducing a bill into the legislature to amend the Code of Civil Procedure to preemptively assign consumer bankruptcy jurisdiction to the general courts, if and when a consumer bankruptcy bill ever becomes law. The explanatory notes to this bill make what seems to be a rather superficial and formalistic argument about consumer contracts “not bearing an economic character,” since they relate only to personal consumption, and noting that consumer cases will raise all manner of non-economic issues, such as family, housing, and labor, which the Arbitrage courts are ill-situated (if not constitutionally forbidden) to address. The next thing you know, they’ll introduce a distinction between “core” and “non-core” matters—that will really fire things up!

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