Policy and regulatory advances in informal workout and MSE processes

^{*Scott Atkins is President of INSOL International.}

This article first appeared in International Corporate Rescue and is reproduced here with the permission of Chase Cambria Publishing - www.chasecambria.com.

In August 2021, the authors published an article in this journal¹ outlining the key features of the World Bank’s revised edition of its Principles for Effective Insolvency and Creditor/Debtor Regimes (Revised ICR Principles), released in April 2021.

The Revised ICR Principles are intended to provide a policy framework that global governments can use to both support lending and credit transactions and structures (including an effective framework for the creation, registration and enforcement of security interests to provide an incentive for lenders to advance working capital as the lifeblood of any business), and create a best practice insolvency system. The Revised ICR Principles are informed by the World Bank’s work with UNCITRAL, INSOL International, the International Association of Insolvency Regulators and the advice of an ad hoc committee of partner organisations including the Asian Development Bank (‘ADB’).

The original article concentrated on the recommendations in the Revised ICR Principles in relation to informal workouts and micro and small enterprise (‘MSE’) insolvencies, and outlined options for future law and policy reform in relation to those recommendations.

This new article is intended to serve as an update to the original article. We continue the focus on informal workouts and MSE insolvencies, providing a ‘deeper dive’ into the importance and contextual place of these matters as part of an efficient, best practice insolvency system. We also explore how informal workouts and MSE insolvencies have been treated under other international policy and regulatory standards – particularly in the work of the ADB, and in the Asian Principles of Business Restructuring (‘Asian Principles’) developed in partnership between the Asian Business Law Institute (‘ABLI’) and the International Insolvency Institute (‘III’) – and the advancements made since the Revised ICR Principles were originally released.

There is a strong appetite for insolvency law reform across the world at the present time, as governments and regulators are realising the important role that efficient restructuring and insolvency processes play in ensuring economic and financial stability. Informal rescue and MSE-specific insolvency laws have been focus points of this reform process. A growing number of jurisdictions are putting in place hybrid workout frameworks under which informal creditor negotiations are pursued prior to expedited court confirmation of an agreed restructuring plan, while there have also been new MSE insolvency developments in India, Spain and in the European Union (‘EU’) since the time of our original article, following the MSE systems introduced in the United States, Australia, Myanmar and Singapore prior to the release of the Revised ICR Principles.

This reflects a clear movement towards an approach where informal rescue and more flexible, simple MSE processes are considered to be essential features of an efficient, effective insolvency regime. This opens the door to the potential for greater cross-border harmonisation in relation to these issues as different jurisdictions continue to rapidly advance their insolvency law and policy agendas.

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