On 10 May 2022, ABLI and the International Insolvency Institute (III) jointly released the Guide on the Treatment of Insolvent Micro and Small Enterprises in Asia (Guide), a second output under our joint Asian Principles of Business Restructuring project (Project).
MSEs represent the vast majority of businesses in all jurisdictions in Asia. In most Southeast Asian countries, MSEs account for more than 96% of the total number of firms. Despite their economic relevance and the importance of the insolvency process, most Asian jurisdictions do not yet have insolvency frameworks that are suitable for MSEs. The pandemic has laid bare the vulnerability of these businesses and accentuated the urgency of having in place a suitable framework to approach the insolvency of MSEs.
The Guide identifies five key principles for more immediate adoption by jurisdictions as building blocks of a well-functioning MSE insolvency framework (Key Principles), and six aspirational principles that should ideally be considered and adopted by jurisdictions over the longer term to provide MSEs with a more comprehensive legal and institutional environment to deal with financial distress (Aspirational Principles). This tiered approach, unique among all current literature, is designed by considering the extreme diversity of institutional development of Asian jurisdictions and with the hope of assisting policymakers better digest the recommendations made in this Guide.
During the drafting process, stakeholders in the academia, policy-making sphere and private practice across the Asia-Pacific, including those from Australia, Brunei, Cambodia, China, Hong Kong Special Administrative Region of China, India, Indonesia, Japan, Malaysia, Singapore, South Korea, Thailand and Vietnam, offered valuable input. The Guide also benefits from III’s global reach of internationally renowned experts from countries such as Canada, Germany, Italy, the Netherlands, United Kingdom and United States who graciously shared their insights and expertise. International organisations like INSOL International, the United Nations Commission on International Trade Law and the World Bank were also consulted during the almost year-long drafting exercise.
The 65-page Guide is available for free download here.
Read the joint press release by ABLI and III here.
Principles for the Design of an Effective and Efficient Insolvency Regime for MSEs in Asia
Key Principle 1: Promote Out-of-Court Restructuring for Viable MSEs
Key Principle 2: Implement a Simplified Insolvency Process for MSEs
Key Principle 3: Provide a Discharge of Debts for Honest but Unfortunate Entrepreneurs
Key Principle 4: Reduce the Stigma of Insolvency Proceedings
Key Principle 5: Build up Training and Institutional Capacity
Aspirational Principle 1: Implement Hybrid Procedures
Aspirational Principle 2: Grant Tax Incentives for Debt Restructurings
Aspirational Principle 3: Promote Mediation and Other Forms of Alternative Dispute Resolution
Aspirational Principle 4: Involve Public Creditors in Restructurings
Aspirational Principle 5: Promote Litigation Funding
Aspirational Principle 6: Create a Public Agency for Managing Simplified Processes for MSEs