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!

A 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

On 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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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.

I'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

I 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.

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Deng 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."

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As 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