Insolvency law reform and capacity building in emerging markets update on our experience in Armenia and Bhutan

In the mystical Himalayas; in a valley beneath the nest of a flying tiger, lies the old town of Paro; gateway to the Kingdom of Bhutan and venue for a workshop where Australian Chair & Global Co-Head of Restructuring, Scott Akins and Special Counsel, Rodney Bretag will conduct a workshop with the Kingdom’s insolvency practitioners and other stakeholders to discuss the first draft of a new insolvency law.

In the Q2 2023 edition of the International Restructuring Newswire, we provided a brief insight into our work in reforming insolvency law in Myanmar, Armenia, and Bhutan. Since that time, the sausage factories of law reform in Armenia and Bhutan have moved slowly but relentlessly towards the adoption of new insolvency laws.

In Bhutan, we have worked closely with the Asian Development Bank (ADB), its Bhutanese consultant, and Bhutan’s Ministry of Finance (MoF) to draft a comprehensive new law to be known as the Insolvency Rescue Act. Informed by our previous work for the ADB in Myanmar as well as our wealth of experience in insolvency practice in Australia and elsewhere, the new law will include provisions for corporate rescue and rehabilitation, as well as the adoption of special provisions for Micro and Small to Medium Enterprises, Individual Rescue Arrangements, and Debt Relief Orders. These provisions have been drafted with the small scale of most business activity in Bhutan at the front of our minds.

Such provisions remain especially important in emerging markets and developing economies (EMDEs). In its latest World Economic Outlook Report issued in October 2023, the International Monetary Fund (IMF) scaled back its projection for GDP levels in EMDEs at the end of 2024 to 3.8%. The IMF commented in its Report, “… a full recovery towards pre-pandemic trends appears increasingly out of reach, especially in emerging markets and developing economies.”

While an EMDE GDP growth of 3.8% compares favourably with the 1.4% projected by the IMF for advanced economies, it suggests that business in EMDEs will face many challenges in the months ahead and sets the context for the important work that Scott and Rod are doing in Bhutan and Armenia.

The next ADB-led mission to Bhutan from 10 to 19 April 2024 will be the third for NRF teams led by Scott and will include meetings with the MoF and other government and institutional stakeholders in the capital, Thimphu, before the three-day workshop in Paro to work through the first draft of the law (and accompanying rules and regulations) with insolvency practitioners and stakeholders from across Bhutan.

The implementation of the UNCITRAL Model Law on Cross-Border Insolvency as part of Bhutan’s new insolvency law is another key feature of a best practice insolvency process which forms part of the proposed insolvency law reform in Bhutan. If enacted, the adoption of the Model Law will enhance foreign investment and business confidence due to the predictable, principled system for cross-border recognition and cooperation that promotes efficiency, minimises costs, and increases the likelihood of successful restructuring outcomes. This is highly appealing for both creditors and debtors in determining where and how to invest funds and structure businesses in a globalised, interconnected world.

In the meantime, work on insolvency reform continues in the ancient land of Armenia in the shadow of Mount Ararat. Reflecting the fierce independence of a people who have fought encircling foes over the many centuries since this land became the first anywhere to call itself Christian, the Yerevan resident consultants retained by the ADB have taken the lead in the preparation of a final Concept Report, recently approved by the Ministry of Justice. This Report will be the subject of stakeholder consultations (attended by Scott and Rod) at what promises to be an interesting two day retreat in the hills outside Yerevan in early June 2024. It is anticipated that drafting work on a new insolvency law will be under way by the time of the retreat.

Institutional building efforts remain the focus of our attention in both Bhutan and Armenia as we seek to establish effective insolvency regimes, driven by a skilled, specialised body of insolvency practitioners who are, in turn, supported and regulated by strong institutions responsible for interpreting and administering the underlying laws.

Leading the design and implementation of new insolvency laws across Asia and the World remains amongst the most exciting and rewarding projects that Scott and Rod have undertaken in their long careers; at the vanguard of NRF’s contribution to economic growth and development in EMDEs.

We’ll keep you updated on the progress of these projects from time to time.