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Singapore-Delaware Courts Adopt Cross-Border Insolvency Guidelines

Collecting payments across borders can be challenging enough. If problems escalate to a cross-border insolvency, the road gets even bumpier. The Singapore Supreme Court and U.S. Bankruptcy Court for the District of Delaware adopted on Feb. 1 guidelines they say will cut costs and improve the process for proceedings.

“These guidelines are an effort for improved coordination among courts,” said attorney Bruce Nathan, a partner with New York-based Lowenstein Sandler LLP. “This is good news for trade and other creditors who are involved in international insolvencies. These guidelines ensure that courts will not be making inconsistent decisions.”

The guidelines are “a net positive and should hopefully lead to less confusion as U.S. and foreign courts try to work toward the goal of maximizing recoveries for all creditors,” Nathan explained. They are not unique, however. “We’ve done this before with Canada, and it has been very successful,” he added. Nathan and his colleague Philip Gross will include a discussion about these types of guidelines as part of a free FCIB members-only webinar, Chapter 15: Demystifying the Bankruptcy Code and Other Cross Border Insolvency Issues, 11 AM ET, on Thursday, March 2.

Other countries, including Australia, England and Wales, are expected to follow suit, according to The Straits Times. “The guidelines released by the Supreme Court yesterday were first worked on during the [inaugural Judicial Insolvency Network meeting initiated by Singapore last October] and provide a roadmap for how courts communicate.”

According to the article, the guidelines promote the following:

  • Parties notify courts if the case would benefit from cross-court coordination; courts encourage parties to consider guidelines.
  • Where appropriate, a protocol or court order is issued following parties' application or at court's own motion.
  • Court order may include means or circumstances in which courts coordinate or communicate. For example, courts may communicate directly or send documents such as judgments or transcripts of proceedings to each other or direct counsel to send pleadings to courts concerned.
  • Courts may also conduct joint hearings so that two or more courts may simultaneously record evidence and hear arguments, but each court retains independence and impartiality.

In 2012, nonbinding guidelines were developed by the American Law Institute and the International Insolvency Institute and for cross-border insolvency cases in the European Union in 2015, pointed out professor Bob Wessels, of the University of Leiden, The Netherlands, co-drafter of the American and European examples. These types of guidelines reduce legal costs for stakeholders and help preserve the value of financially distressed businesses, he added. “It’s spectacular that courts themselves have taken this initiative.”

Defending the Central Bank

Chris Kuehl, Ph.D.

Over the last 10 years or so, the central bank has emerged in a far more prominent position than had been the case previously. This has happened with the Federal Reserve in the U.S. as well as with the European Central Bank (ECB), the Bank of England (BoE), the Bank of Japan (BoJ) and many others. It is not that these banks have been without power and influence in the past, but today, their roles have expanded as other players seem to have shrunk from the tasks.

The traditional division of economic powers called for the legislative bodies to be agents of stimulation and for central banks to be the brake. The most powerful weapon the central bank has is its rate setting ability, but even this is somewhat indirect. The Fed funds rate is just the rate that banks charge each other to borrow from one another. Usually, this rate influences the prime rate and the prime rate affects all the others, but there is no guarantee or requirement that banks react to the changes.

If one wants sure and certain stimulation, one turns to legislators and their ability to engage in taxing and spending. The central bank’s power over rates is strongest when the desire is to slow things down as few banks are going to keep their rates low while the rates they use to borrow are rising. Over the last decade, the fiscal side of the equation was missing in action. There were none of the traditional efforts to bolster the economy with additional spending or tax cuts, and that left the Fed, the ECB, BoE, BoJ and others with the task of becoming the chief stimulator.

As would be expected, there have been many critics who have not approved of this expanded mandate. They are of the opinion that rates have stayed far too low for too long. Many within the ranks of the Fed and other central banks agree and have been pushing to get rates back up. They know that ultra-low rates have destroyed the ability to earn interest on savings. They also know that these low rates have spurred speculative investing. These are the people within the banks labeled as hawks. The doves are those who have argued that rates had to stay low; otherwise, the economies of the world would have continued to slide into an extended recession. Now that the Fed is shifting toward raising rates, there are other complaints from those who do not think the economy is really ready to stand on its own just yet. There remains the issue of fiscal engagement as Congress has yet to pony up much in the way of stimulative cash—all the talk of infrastructure spending notwithstanding.

In addition to the criticism of monetary policy, there is the regulatory function of the Federal Reserve and many of the other central banks. This has always been part of the mandate because the central banks are, after all, central banks. They manage and regulate the banking sectors in their countries in a variety of active and passive ways. The deposit requirements and the rules of banking are set in part by the Fed, and there are rates that apply to the money the commercial banks hold at the central bank. The financial sector has always been subject to a welter of rules and rule-making agencies. The collapse of the banking sector and subsequent recession sent legislators and regulators into a frenzy of reactions designed to “make sure this never happened again” before really understanding exactly what “this” was. The Fed suddenly got more regulatory powers designed to protect the consumer from unfair practices and from themselves. These new powers were controversial from the start and have only grown more complex.

Is the Fed the right place for this regulatory authority? Has all the additional responsibility muddied the waters to the point the Fed can’t really do its job? Is the primary problem one of fiscal failure rather than monetary policy overreach? These are big questions now and will get bigger in the future. The commentary by the Fed at the latest meeting dealt with these issues. There is full knowledge that Trump will be making two appointments to the Fed’s Board of Governors at some point. They will not have special powers as the Board is expected to continue governing by consensus, but they will likely bring the critics inside. The other factor to consider is that both Janet Yellen and Stanley Fischer will be stepping down in a year and a new chair and vice-chair will take their positions.

Africa: Opportunity and Challenges

Seven of the world’s 10 fastest-growing economies are located in Africa, according to a World Economic Forum Annual Meeting 2017 article. “Despite the pre-conceived ideas of a continent forever plagued by disease, war and turmoil, it is rapidly becoming one of the most desirable investment destinations.” Although the past two years have been economically challenging for the continent, the author expects it to bounce back this year.

If his expectations prove correct, business-to-business credit professionals could find themselves doing more business in Africa.

This week a question arose on the FCIB members-only discussion board about doing business in the Republic of Congo. A global credit manager is trying to find out more about an alleged banking regulation, CODAC, that her customer says prohibits banks from releasing funds to pay invoices older than six months. The credit professional has not been successful finding any information about such a regulation and wants to know if anyone else has heard about it or could suggest an alternative way to get paid, while remaining compliant. FCIB is working with the member to find the answers to her concern. Meanwhile, any members with insight into the problem should feel free to post a response on the discussion board.

Another credit professional said that getting information out of the countries in Africa where she has customers (Egypt, Ethiopia, Nigeria, Kenya, South Africa and Algeria) has been difficult. “We may be able to get customer credit reports from various resources, but data accuracy depend on what the customer wants to divulge, may not be accurate and might not follow [Generally Accepted Accounting Principles and International Financial Reporting Standards] requirements. They sometimes have multiple sets of financials depending on whether it is the government, a vendor, a supplier or credit reporting agency that is asking. Fraud and money laundering is also a concern.”

If you currently do business in Africa or your company is thinking about expanding there, FCIB is offering a webinar, “Doing Business in Africa,” 10 am ET on Thursday, Feb. 16, that could help answer some of your questions and concerns. Collections attorney Ayodele Musibau Kusamotu will examine some of the challenges and opportunities, with a specific focus on Nigeria, Ethiopia, Egypt and some of the Ohada countries.

Election Calendar

February 5 – Liechtenstein, Parliament

February 12 – Turkmenistan, President

February 19 – Ecuador, President

April 9 – Serbia, President

April 23 – France, President

May 19 – Iran, President

Global Roundup

French election to test European stability amid potential NATO crisis. As the credibility of NATO mutual defense commitments remains tainted by President Trump’s judgment of its obsolescence, European Union countries will find it increasingly expedient to accelerate the development of their own defense infrastructures. The French presidential elections will be a major event in the context of ongoing transatlantic diplomatic shifts and potential realignments. (Global Risk Insights)

U.S. Treasury sanctions 13 individuals, 12 entities related to Iran. The United States on Friday sanctioned 13 individuals and 12 entities under its Iran sanctions authority, days after the White House put Tehran "on notice" over a ballistic missile test and other activities. In a statement on its website, the U.S. Treasury listed the sanctioned individuals and entities, some of which are based in the United Arab Emirates, Lebanon and China. (CNBC)

Egypt's foreign currency inflows rise. An inflow of $9 billion into Egyptian banks since the country's central bank floated its currency shows confidence in the economy is returning, but bankers and economists say investors need reassurance to attract higher volumes. The central bank raised interest rates by 3% and abandoned its currency peg of 8.8 pounds per dollar on Nov. 3, causing the pound to halve in value. It hoped to unlock foreign currency inflows and end a black market for dollars that had sucked away foreign currency from the banking system. (Reuters)

Deutsche Bank fined in plan to help Russians launder $10 billion. Deutsche Bank agreed on Monday to pay a $425 million fine to New York State’s main financial regulator to settle charges that it helped Russian investors launder as much as $10 billion through its branches in Moscow, London and New York. The punishment represents the latest regulatory black eye for Deutsche Bank, Germany’s largest. In the last decade, it has been implicated in several financial scandals, including pushing toxic mortgages on investors and manipulating London’s main lending rate for its own financial gain. (The New York Times)

Key Treasury innovations: Real-time payments and blockchain. Chris Mager, CTP, head of the new global innovation group from BNY Mellon’s Treasury Services business, discussed with the Association for Financial Professionals the type of innovation his group is looking at, such as real-time payments and blockchain technology. (AFP)

India’s demonetization shock pushes Nepal closer to China. There are signs that Nepal may be shifting away from its traditional pro-Indian alignment in order to diversify its international relationships. Specifically, Nepal has received growing Chinese attention in recent years, yet events in 2016 catalyzed this trend, as Nepali-Indian relations were stained. Often overlooked, even by long-standing partner India, Nepal became collateral damage during India’s rupee demonetization efforts. Reliant on remittances from India and with the Indian rupee seeing widespread domestic use, Nepal was caught off guard by India’s decision. (Global Risk Insights)

The potential fallout from a U.S. border tax. Whether or not a border tax proposed by Republican congressional leaders helps U.S. President Donald Trump pay for his Mexico border wall, it would have a radical impact on global trade patterns. Deutsche Bank AG economists have calculated the amount of trade with the U.S. that countries stand to lose if they face a 20% penalty at the border. Mexico is the obvious biggest loser, but Canada and Asian manufacturing economies, including Vietnam, Malaysia and Thailand, would also be in line for a big hit. (Bloomberg)

‘America First’ was the catalyst for renewed EU-Mexico trade interest. The European Union and Mexico have scheduled two new rounds of trade talks in the first half of 2017, an acceleration of negotiations intended to deepen economic ties in the wake of Donald Trump’s inauguration as U.S. president. (EurActiv)

North Korea, the global economy and the role of the UN. This week, the Lowy Institute's International Security Program, supported by the Korea Foundation, is hosting the Australia-Republic of Korea (ROK) Emerging Leaders International Security Forum in Sydney and Canberra, bringing together scholars and future policymakers focused on the bilateral security relationship. As North Korea once again takes the spotlight with the possible test of an Intercontinental Ballistic Missile (ICBM), the forum’s participants ask: What, if anything, can be done by the United Nations? (The Interpreter)

It’s official: Hanjin is finished. While not surprising since Hanjin assets have already been in the process of being sold off in recent weeks, a South Korean court finally made it official yesterday. It will formally end Hanjin Shipping’s court receivership process in two weeks. The implications of the ruling are that the Seoul court found that the South Korean shipping company, once the seventh largest in the world, is not a candidate for rehabilitation. (Global Trade Magazine)


Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations