Restructuring: a how-to guide: successful debt restructurings in emerging markets require careful planning by foreign creditors

International Economy, The, Nov-Dec, 2001 by Steven T. Kargman

Individual creditors may approach the issue of hiring local counsel on the basis of their individual institutional objectives and needs, including the size of their individual exposure, as well as on the specific facts and circumstances of the restructuring. Although individual creditors that are members of a steering committee may decide to rely upon the steering committee's local corporate counsel, in certain circumstances they may decide to retain separate local litigation counsel. Such local litigation counsel may be assigned such important tasks as filing creditor claims for recognition in court in any pending insolvency proceeding, which, depending on the jurisdiction, can be a highly formalistic and technical process.

If a decision is made to hire local counsel, it should be acted upon as early as possible in the restructuring process. The pool of highly qualified local counsel that can handle complex and sophisticated financial matters in general, and restructuring and insolvency matters in particular, may be somewhat limited in these jurisdictions, especially where there is a large creditor body involved and thus where there is strong demand for the services of local counsel. If they act too late, foreign creditors may find that all of the best local counsel have already been retained by other creditors or by the debtor and its affiliates. Potential conflict issues at law firms may also become more of a factor in the selection process the longer creditors wait to choose local counsel.

In short, foreign creditors need to bear in mind that they may not have the wide choice of counsel that they would have in their home jurisdictions. Indeed, in some emerging market jurisdictions, there may be only a small number of full-service corporate law firms that have the capabilities of handling a full-blown debt restructuring of a substantial debtor company. The number of highly qualified litigators and litigation firms may be similarly constrained.

As foreign creditors have discovered from some of their experiences in the post-Asian financial crisis era, they can potentially face serious obstacles in advancing and closing restructurings in the emerging markets. Without a well-developed strategy in place, foreign creditors may find themselves at a serious disadvantage vis-a-vis the local borrower in the restructuring process. Although a well-developed creditor strategy will not necessarily guarantee a successful restructuring outcome, it will at least enable foreign creditors to focus on how they can more effectively and expeditiously advance their interests on potentially unfamiliar and difficult terrain.

Steven T. Kargman, formerly General Counsel of the New York State Financial Control Board, is currently Counsel with the Export-Import Bank of the United States. The views expressed are solely the views of the author and do not necessarily represent the views of the Export-Import Bank or of the U.S. Government.