Banks & Financial Institutions Chapter 11 Legislative Amendment Singapore United States

Fixing Too-Big-To-Fail [Banking Law] [Foreign Law Commentary]

US Congress Passes Financial Institutions Bankruptcy Act 2017 (FIBA)

The Global Restructuring Review recently reported that the US Congress passed the FIBA on 5 April with the objective of amending the Bankruptcy Code to provide a framework to address the contingency where a financial institution with assets in excess of USD 50 billion suffers from financial collapse.

Subject to the US Bankruptcy Court’s discretion, the financial institution will be able to apply under (the newly minted) Subchapter V of Chapter 11 of the US Bankruptcy Code to transfer its assets to a new “bridge” company. The objective of the amendments is to ensure that situations like the collapse of Lehman Brothers – and the consequential financial shockwaves that were caused by such collapse – are averted as far as possible.

Ultimately though, the US Bankruptcy Court will only sanction the application if it is satisfied that the transfer is necessary to protect the “financial stability of the United States”.

The GRR article considers whether the US Bankruptcy Court is the appropriate forum to decide and determine such issues, given that the such applications – if they were to arise – would be extremely complex and time sensitive.

Observations

The concerns that the US Bankruptcy Court may be ill-equipped to deal with such financial collapses are legitimate, since how exactly the regime would work in the context of financial institutions with multi-jurisdictional presences and ongoing transactions is unclear.

Further, such an instant hiving off of assets may cause significant consequential loss, and orders would need to be tailor made to ensure that open transactions which can and should be fulfilled are in fact completed.

There’s no perfect system, but at least it’s clear that the US is taking steps in the right direction.

Perhaps one way of better equipping the US Bankruptcy Court in making the appropriate order would be to require recommendations from the US Treasury Department and private professionals as part and parcel of any orders made.

22 April 2017

*The contents of this article represent the views and commentary of the author alone and are subject to copyright protection under the laws of the Republic of Singapore (as may from time to time be amended). The author is not qualified to practice or advise on matters of US law, and the contents of this article are purely observational. No part of this article may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed and/or broadcast (including storage in any medium by electronic means whether or not transiently for any purpose save as permitted herein) without the prior written permission of the author. All the author’s rights are expressly reserved and nothing herein shall be construed as a waiver thereof.

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