Steering through the complexities and uncertainties of asset recovery in the Asia-Pacific

This article is based on a series of presentations made at Quantuma’s Navigating the unique structures and stakeholder interests in insolvency and restructuring in Asia-Pacific seminar, which was held in London in November 2024.

Why are insolvency and default risks rising?

Worldwide, corporate default rates have soared to levels not seen since the global financial crisis, as high interest rates make it harder to repay debts and secure affordable credit. The crunch often comes when credit taken out at previously favourable rates comes up for refinancing.

In the Asia-Pacific region, the challenges are heightened by the rapid growth in private credit. A significant proportion of the finance secured when private credit demand began to surge is now coming up to maturity. It will therefore need to be renegotiated at higher and, for some already troubled businesses, unaffordable rates. When compared to traditional lenders, private credit funds also tend to move earlier and more forcefully to pursue recovery of non-performing loans.  
 

Economically, the incoming US administration’s renewed imposition and anticipated broadening of tariffs could encourage more companies to adopt a so-called ‘China plus one’ strategy, in which some operations are moved from China to other parts of the Asia-Pacific region attracting lower tariffs. However, the extension of supply and production chains that come with China plus one could put strains on financing and logistics. This could also bring investors and parent companies into new and unfamiliar markets and hence heighten the challenge of sustaining visibility over assets and exposures.

How easy is it to secure recovery?

Insolvency, restructuring and recovery practices vary quite markedly from market to market. At one end of the spectrum, you have the relative familiarity and certainty of Singapore’s common law petitioning and application of United Nations Commission on International Trade Law (UNCITRAL) cross-border enforcement. As we will explore in a further article in this series, these legal structures have led to Singapore’s emergence as the primary ‘restructuring hub’ for the region.

Hong Kong also applies common law. However, it has not adopted UNCITRAL. Whilst Hong Kong has signed a recognition agreement for mutual insolvency recognition and assistance with insolvency proceedings with China, the scope is still limited.

At the other end of the spectrum are a patchwork of more complex and unpredictable legal systems. These stretch from Indonesia’s application of Sharia law to the relationship-driven dynamics and variable legal interpretations that can influence court rulings and enforcement in China and Vietnam.

The complexities are compounded by the fact that many Asian companies are incorporated in, or have significant interests in, the Cayman Islands and British Virgin Islands (BVI), as well as other offshore centres, such as Cyprus. Effective asset recovery therefore needs to take account of the complex corporate structures and connections running through this Asia-Pacific corridor.

Neither the Cayman Islands nor BVI have signed up for UNCITRAL. Nonetheless, they still provide an important conduit for cross-border restructuring and enforcement. In the Cayman Islands, this includes allowing debtors to seek the appointment of a restructuring officer, supported by a worldwide moratorium against unsecured creditors. In turn, BVI allows recognition and assistance for foreign insolvency proceedings in certain designated countries. These include the UK, USA, Australia and Hong Kong, with the Cayman Islands and Singapore among the jurisdictions added to the list in 2024.

Six ways to boost your chances of recovery

Our team at Quantuma is routinely called in to work on the most complex restructuring, insolvency and recovery cases across the Asia-Pacific region. This gives us unique insights into what works, what doesn’t and why. Six priorities stand out: 

1. Access on the ground expertise

   Being able to work with insolvency practitioners based locally not only helps to provide a realistic understanding of the legal processes and possibilities on the ground, but also the relationships and cultural nuances that can be just as important in determining and achieving the best outcome.

   Our network of local offices across the Asia-Pacific and Caribbean regions helps us to sustain that local insight and presence. We also work closely with lawyers who have experience of local courts and the attitudes of judges within them. In China, for example, the bankruptcy law can be interpreted and applied in slightly different ways across the country’s court system. A good understanding of these variations is crucial in judging how to proceed and then preparing a viable case. 

2. Reach out globally

   Alongside local knowledge, the complex multinational structures of many of the entities you and your clients could be dealing with underlines the importance of collaboration across different jurisdictions, both within the region and beyond.

   The recent voluntary liquidation of Asian Pharmaceuticals Limited (ASLAN) highlights the challenges. The winding up of ASLAN’s principal operations based in Singapore is being managed by our team of liquidators in Singapore. The priorities include seeking buyers for the development programmes that form the company’s primary assets. Like many businesses operating in Singapore, the assignment is complicated by the fact that ASLAN’s parent company is registered in the Cayman Islands. ASLAN had also been listed on the US NASDAQ index. The key to success has therefore been the ability of our Singapore team to work with colleagues in our Cayman Islands team as part of a global assignment that has included liquidation of the parent company and delisting from NASDAQ.

3. Pick your spot

   For any multinational insolvency case, it is important to determine the centre of main interests (COMI) and seek to instigate initial proceedings in the relevant jurisdiction. However, the distinct legal systems and lack of cross-border recognition in many of the Asia-Pacific jurisdictions make the identification of the COMI and choice of court even more important.

   Within the complex multinational structures that are typical of these entities, determining the COMI is not always clear cut. That is why it is so important to unravel the entity structures and relationships between them to establish where the principal funds are held and key decisions are made.

4. Track down hidden assets

   The complexities of insolvency and recovery can be compounded by organised efforts to conceal assets, move them offshore or dissipate them among family and friends. Investigative support is therefore crucial.

   In an ongoing case, we are seeking to trace and recover some US$7.65 billion of funds misappropriated from the Malaysia Development Bank. In what has been described by the United States Department of Justice as the “largest kleptocracy case to date”, the funds have been diverted across a complex network of companies and banks around the world. Coordinated liquidations in BVI, the Cayman Islands and other offshore jurisdictions have enabled us to track down company records previously concealed from regulators and authorities, begin to recover cash and prepare claims against people behind this fraud. So far, we have been able to reclaim US$1.8 billion with more recoveries pending.

   The benefits of forensic investigation can also be seen in the ongoing liquidation of the Labuan-based City Credit Investment Bank and its Caribbean subsidiaries. Our forensic team has been playing a key role in tracing dissipated assets and tracking key individuals across multiple jurisdictions including Malaysia, Hong Kong, Indonesia, Japan, BVI and the Cayman Islands, as well as the UK and USA.

   Forensic investigation is a rapidly developing field. Augmenting traditional investigative techniques with AI-assisted e-discovery and open-source intelligence analysis allows us to take a faster and more closely targeted approach to evidence review and gathering, while helping to identify crucial links between seemingly unconnected people and evidence. In the City Credit Investment Bank case, this tech-assisted detective work has enabled us to sift through more than 2 terabytes of emails, phone messages and other electronic data to establish relationships, locate dissipated assets, search for evidence of negligence and possible fraud and support applications for recognition and legal proceedings in other offshore jurisdictions.

5. Be flexible and pragmatic

   Every case is different. That is why it is so important to be flexible and pragmatic in determining the most effective value preservation and recovery strategy.

   One of the options that we can pursue is taking direct control of the enterprise. This allows us to develop an inside understanding of the business, trace key assets and judge how best to maximise recovery value, be this through sale, capital raising, solvent restructuring or another way forward, depending on the circumstances.

   The turnaround can be seen in our restructuring of a Singapore-listed design and construction company with operations in Malaysia, China, Thailand and Myanmar. The impact of COVID-19 lockdowns had led to significant debt and liquidity issues. Having been appointed as Chief Restructuring Officer, we prepared and implemented the sale and exit of the company’s state-of-the-art manufacturing facility in China and closure of its operations in Thailand, which allowed for significant cost reductions across the group. In parallel to the operational restructuring, we assumed the role of Interim Chief Financial Officer. This allowed us to implement rigorous financial controls and reporting processes, as well as pursuing financial restructuring through nine parallel schemes of arrangement in Singapore and Malaysia. To facilitate the restructuring and support ongoing operations, we sourced and structured the first ever US$62million super-priority rescue financing facility approved by the Singapore High Court.

   In some jurisdictions, the delays and uncertainties surrounding legal proceedings mean that court action may not be the best way forward. As we have seen in a number of cases, it may therefore be preferable to work with management to develop and implement restructuring plans as part of a consensual approach. Similarly, if trust between lender and debtor breaks down, we can liaise with both parties to verify information and rebuild mutual contacts and confidence. 

6. Boost visibility and be proactive

   With the default and insolvency risks growing, it is important to develop a clear view of the prospects of new and existing investments. A key part of our work for private credit funds and other international investors is therefore carrying out health checks on companies on the ground, either ahead of investment, or when there are concerns over repayment.

Here to help

Our insolvency and restructuring teams are working with investors, creditors and their legal representatives around the world to protect value and recover assets.

We work with clients to deal with all aspects of insolvency work, from distressed M&A to regulatory and contentious litigation and investigation. We recognise that complex situations involving multiple jurisdictions require a thorough understanding of the legal, commercial and cultural challenges at play in order to deliver the best outcome.

Our globally integrated team of professionals have both the people on the ground and the international connectivity to manage complex cross-border assignments. Our hands-on approach and ability to collaborate closely across different jurisdictions greatly enhances the likelihood of success for our clients.

All our fees are tailored to the nature and complexity of the assignment. In addition to retainers, we can often offer flexible performance-related fee structures including equity arrangements and milestone payments.

If you would like to discuss any of the issues raised in this article or how we could help you or your clients to trace and reclaim missing assets, please get in touch. 

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