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1. The pending or actual insolvency or filing of
a petition for bankruptcy by a parent company in its home jurisdiction
(e.g. in the U.S. under Chapter 11 of the U.S. Bankruptcy Code) has no
possible legal effect on the operations of its foreign subsidiaries.
2. Australia is one important jurisdiction that
prohibits an insolvent Australian company from trading and incurring
debts.
3. The standards for determining insolvency of
foreign subsidiaries are always the same as that for the parent
company.
4. Insolvency or bankruptcy of the parent company
will not automatically cause its subsidiaries to become insolvent.
5. Individuals who are appointed by the parent
company to act as directors and officers of an Australian subsidiary
have no potential criminal or civil liability if they allow the
Australian subsidiary to continue to trade or incur debts while it is
insolvent.
6. Directors of a Taiwan company do not face any
potential civil or criminal liability when their company becomes
insolvent.
7. Since directors and officers face little risk
of potential liability, indemnity or liability insurance coverage for
directors and officers of foreign subsidiaries is unnecessary in the
Asia-Pacific region and legal counsel often waste time examining this
issue prior to a restructuring or bankruptcy petition of the parent
company.
8. If any of the foreign subsidiaries of an
insolvent parent company also become insolvent, the in- house legal
counsel of the parent company should examine whether the parent
company may have possible shareholder liability. As a first step,
legal counsel should check in which countries the foreign subsidiaries
are incorporated.
9. When an insolvent parent company considers
restructuring or filing a petition for bankruptcy (e.g. under Chapter
11 of the U.S. Bankruptcy Code), one of the issues that legal counsel
should look into is the repayment of inter-company loans granted to
subsidiaries and the remittance of dividends due to the parent company
as part of the restructuring or bankruptcy plan for satisfying
creditors' debts.
10. Legal counsel for the parent company will
only need to apply one standard for determining declaration of
dividends of foreign subsidiaries in Asia-Pacific since all
Asia-Pacific countries apply the same rules.
11. The CEO of a parent company informs its
in-house legal counsel that the parent company is requesting the
foreign subsidiaries to pay dividends to the parent company in order
to repay debts of the parent company. Legal counsel should advise the
CEO that dividends may be remitted by the subsidiaries to the parent
company subject to relevant local regulations related to declaration
of dividends, the solvency of the subsidiaries under local law and
further subject to any rules on unfair preference of payments in the
relevant jurisdiction.
12. Auditors of Asia-Pacific subsidiary companies
are required by local law to include going concern qualifications in
the audited financial statements when the parent company faces
financial difficulty.
13. If an insolvent parent company has a going
concern qualification in its financial statements, its Asia-Pacific
subsidiaries will therefore be deemed insolvent and their operations
should immediately be discontinued.
14. Before the parent company files a petition
for bankruptcy, it is prudent for legal counsel to review any loan
agreements of the subsidiaries and security documents provided by the
parent company on behalf of its foreign subsidiaries.
15. As there are cross-default issues that may
arise due to the insolvency or bankruptcy of a parent company, it is
advisable for legal counsel to check for any cross-default provisions
in the parent company's or in the foreign subsidiaries' agreements
as soon as possible prior to incurring a default or filing a petition
for bankruptcy.
16. When a parent company prepares its
restructuring plan or its petition for bankruptcy, its directors,
officers, in-house legal counsel and advisors do not need to consider
the operations of its foreign subsidiaries.
17. Prior to restructuring or filing a petition
for bankruptcy by a parent company with subsidiaries in the
Asia-Pacific region, in-house and bankruptcy counsel should consult
with counsel based in the Asia-Pacific region to assist regarding
local issues.
18. When a parent company faces financial
difficulties and considers filing for bankruptcy, it is usually
unnecessary for in-house and bankruptcy counsel to be familiar with
legal issues affecting the operations of the parent company's
foreign subsidiaries.
19. Prior to the filing of a petition for
bankruptcy by the parent company, it is often helpful for in-house
legal counsel and bankruptcy counsel to gather as much relevant
information as possible about the foreign subsidiaries and their
operations.
20. A useful tool for counsel to use to collect
information about a parent company's foreign subsidiaries is to
prepare a general type of form or outline of questions and issues
affecting subsidiary operations that may be filled in with all
necessary relevant information about each subsidiary. |
