Long road ahead for restructuring

Restructuring in China will continue to be a difficult process, although some of the necessary tools are now in place, expert practitioners said at a conference in Hong Kong recently.

Although the country has come a long way since 1997, when all Chinese banks were state owned, there is still significant government involvement and close regulation by both the People's Bank of China and the China Banking Regulatory Commission. It will take some time for the distressed company culture to evolve from one of insolvency to one of restructuring.

“It's no gentleman's game,” PricewaterhouseCoopers advisory services partner Ted Osborn told the Asialaw in-house summit in mid-March. “There's no culture of workouts as you might have elsewhere.”

During a panel discussion for in-house corporate counsel, Osborn said that the systems now in place are well-suited to both approaches. His fellow panellists also appeared cautiously confident that the Enterprise Bankruptcy Law, issued in June 2007, could stand up to increasing pressure.

“The tools are there,” said Bruce Cooper, a partner of Freshfields Bruckhaus Deringer. “But it's still a very politicised game,” he added.

Later, practitioners described another difficulty that counsel could face when trying to save a Chinese venture: getting the approval of the legal person in charge. In China, the agreement of the directors, particularly the legal person, is needed before the directors can be changed. And in some cases, those directors may try to resign, refuse to co-operate, or even flee.

“To save the company, you sometimes need directors' resolutions. If they're running for the hills, you can't achieve that,” said Sarah Bower, executive director of the legal and compliance department at Nomura International (Hong Kong).

Even if the local government is supportive, said one panellist, it could still take between three and six months to go through the necessary procedures and change the legal person.