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Sri Lanka Dissemination Seminar

25 June, 2007
Colombo, Sri Lanka

LEGPS, in association with the Central Bank of Sri Lanka (CBSL) organized a dissemination seminar for the findings and recommendations of the Insolvency and Creditor Rights Report on Observance of Standards and Codes (ICR ROSC) in Colombo on June 25. The purpose of the seminar was twofold:  (i) to disseminate to a wider group of stakeholders the results of our findings; and (ii) to build further support for the implementation of key reforms identified in the ROSC report.

The attendance at the seminar was strong and included academics, commercial court judges, government officials and practitioners (lawyers and accountants).  Some of the notable names in attendance were Mr. NPH Amarasena (Director of the Credit Information Bureau of Sri Lanka), Dr. Dayanath Jayasuriya (Professor of Law), Mr. R. Senathirajah (Senior Practitioner), Dr. Harsha Cabraal (Vice-President BRIPASL -Bankruptcy Recovery and Insolvency Professionals’ Association of Sri Lanka) and Mr. Kandiah Neelakandan (Senior Practitioner).

Naoko Ishii, the World Bank Country Director for Sri Lanka opened the Seminar.  Speakers included Mr. Ajith Nivard Cabral (Governor, Central Bank of Sri Lanka), Mahesh Uttamchandani (Senior Counsel and in-charge of World Bank Insolvency Initiative), Nagavalli Annamalai (Lead Counsel, World Bank), Sumant Batra (Managing Partner of New Delhi based law firm, Kesardass B. Dass and Company and associated with INSOL India) and Dr. Harsha Cabraal. Mahesh first presented the framework for the analysis of ICR systems and the importance of ICR to development. Sumant gave an overview of the state of insolvency reform in South Asia, while Dr. Harsha Cabraal spoke about the new Companies Act of Sri Lanka (which contains winding up provisions).  Finally, a presentation was made by Nagavalli Annamalai, Lead Counsel World Bank on the implementation of the ROSC recommendations. 

The Governor pledged his support for reforms to the insolvency system and, in particular, for the potential application of a mechanism that has had some success in India:  the promulgation of informal workout rules by the central bank which, although not having the force of law, carry the endorsement of the central bank and, therefore, encourage commercial banks to apply them extensively. 

The ROSC findings were discussed in the context of the revised Companies Act (the revisions were post ROSC delivery) and it was noted that the revised winding up provisions did not address the critical weaknesses identified in the ROSC.   The revised law provides a scheme for corporate restructuring and permits the appointment, where appropriate, of an insolvency functionary to supervise a workout.  However, the provisions allow a single secured creditor to scuttle the entire workout process through the appointment of a receiver (without having to seek court approval or wait a minimum period of time).  This critical weakness was discussed in detail and the consensus view of the audience was that there is still no real legal framework for restructuring in Sri Lanka.  Particularly noteworthy was a discussion around the issue of delays in the courts.  Detailed exchanges took place between bankers and judges on:  the cause for such delays; perceived malfeasance on the part of the banks; and a perceived ‘pro-debtor’ bias in the courts.  One of the conclusions that emerged from this exchange was that in Sri Lanka, there is presently very little formal dialogue between the bench and ‘consumers’ of the court system.

The dissemination seminar was very successful in bringing together all the stakeholders and providing them a forum to engage in a dialogue on the issues hindering the development of an efficient insolvency and creditor rights framework in Sri Lanka. The dissemination seminar also identified necessary follow-on work, possibly with World Bank involvement. In particular, desire to have the Bank involved in reviewing drafts of legislation that exist in both the public and private realm was expressed. In this context, Dr. Harsha Cabraal mentioned that a small private sector group is currently drafting a new law that comprehensively deals with insolvency and restructuring, and expressed desire that the World Bank formally provide inputs to the draft law as it progresses. In addition, discussions with the Governor, CBSL on the potential for developing informal workout rules will be initiated.

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