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In accordance with the Law currently in force, a self regulating or ganization of bankruptcy commissioners is a non commercial organiza tion based on membership, founded by citizens of the Russian Federa tion, entered in the Single State Register of self regulating organiza tions of bankruptcy commissioners, the purposes of whose activity are those of regulating and ensuring the function of bankruptcy commis sioners.

The status of a self regulating organization of bankruptcy commis sioners is acquired by a non commercial organization from the date of its entry in the Single State Register of self regulating organizations.

The basis for the organizations entry in the Register is its compliance with the following requirements:

that no less than one hundred of its members meet the require ments established by the Law currently in force in respect to bank ruptcy commissioners, excepting the requirements concerning mandatory membership in a self regulating organization of bank ruptcy commissioners;

the participation of its members in no less than one hundred (in to tal) bankruptcy procedures, including on going ones, excepting bankruptcy procedures in respect to absent debtors;

the existence of a compensation fund or property owned by a mu tual insurance society, formed exclusively in the form of money from the members contributions in the amount of no less than 50,000 roubles per member.

The compensation fund or the property owned by a mutual insur ance society are formed for the purpose of providing financial security for the responsibility to compensate for losses inflicted by members of the self regulating organization while executing the duties of a bank ruptcy commissioner. The resources of compensation funds or the property owned by a mutual insurance society cannot be used for the execution of the liabilities of a self regulating organization, or the liabili ties of bankruptcy commissioners, if the emergence of such liabilities has not been associated with the execution of the functions envisaged by the Law currently in force.

A self regulating organization of bankruptcy commissioners per forms the following main functions:

ensures that its members abide by legislation of the Russian Fed eration and the rules of professional activity of a bankruptcy commissioner;

protects the rights and lawful interests of its members;

ensures openness in respect to information concerning the activity of its members and bankruptcy procedures;

promotes improvement of the level of professional qualification of its members.

Within a self regulating organization of bankruptcy commissioners, beside an executive body, a standing collegial managerial body is formed, consisting of no less than seven persons. The competence of this body includes the approval of the rules of activity and business eth ics of the self regulating organizations members functioning as bank ruptcy commissioners. State and municipal officials cannot be mem bers in the administrative bodies of a self regulating organization.

A self regulating organization of bankruptcy commissioners enjoys the following basic rights:

to represent the lawful interests of its members in their relations with bodies of state authority and local self government;

to notify the arbitrage courts of the Russian Federation concerning the acquisition of the status of self regulating organizations of bankruptcy commissioners;

to appeal in the judicial procedure against those acts and actions of bodies of state authority and local self government that violate the rights and lawful interests of any of its members or a group of members;

to file suits for the protection of the rights and lawful interests of persons participating in bankruptcy cases;

to apply to its members disciplinary measures envisaged by its con stitutive documents or by other documents, including expulsion from the membership in the self regulating organization;

to petition to an arbitrage court that its members, whose actions (or lack of action) involved violations of bankruptcy legislation, be dis missed from the participation in bankruptcy proceedings.

A self regulating organization of bankruptcy commissioners is obliged to:

develop and establish rules of the professional activity of a bank ruptcy commissioner, mandatory for all its members ;

control the professional activity of its members in the part concern ing the compliance with the requirements established by the Law currently in force and with the rules of the professional activity of a bankruptcy commissioner established by the self regulating or ganization;

consider the complaints against the actions of its member execut ing the duties of a bankruptcy commissioner in a bankruptcy case;

develop and establish the requirements to be applied to citizens of the Russian Federation desiring to enter a self regulating organiza tion;

to notify the arbitrage court which is considering the bankruptcy case concerning the expulsion of its member executing the duties of a bankruptcy commissioner in this bankruptcy case, no later than within three days from the date of this members expulsion;

to collect, process and store information concerning the activity of its members, which they disclose to the self regulating organization in the form of reports;

to organize and perform the training of a citizen of the Russian Fed eration as a bankruptcy commissioners assistant;

to keep a register of the bankruptcy commissioners who are its members, and provide free access to the information entered in such a register for persons interested in obtaining such information;

to ensure the formation of a compensation fund or a property owned by a mutual insurance society for the provision of financial security of the responsibility to compensate for losses caused by its members while executing the duties of a bankruptcy commissioner;

to submit to a regulating body, for the purpose of subsequent pub lication, information on the changes made to the constitutive docu ments, rules and standards of the activity and professional ethics of bankruptcy commissioners, as well as other information, as estab lished by the Law currently in force ;

to submit, at the request of a regulating body, reports concerning the bankruptcy procedures effectuated by the bankruptcy commis sioner, who are members of self regulating organization.

Chapter 7. Canadian corporate bankruptcy:

law and public policyAs in so many other areas of its national existence, Canadas bank ruptcy law and practices stem from a joint Anglo French heritage198.

From the United Kingdom comes the backbone of a creditor friendly bankruptcy law, so different from the relatively populist and debtor friendly Bankruptcy Code of the United States199. It is leavened with a sprinkling of imports from the Napoleonic Code civile, still the source of commercial law in Quebec.

The intent of this paper, a contribution to studies by the Institute for the Economy in Transition of Moscow preparatory to further amend ments to Russian corporate bankruptcy law, is to outline certain fea tures of the operation of Canadian bankruptcy law, both in general and in light of specific problems facing Russian reformers. The paper opens with some observations on the characteristics of a good (optimal is too strong a word) bankruptcy system and moves on to a summary de scription of how the Canadian system works. This is followed by a brief section on how the system has changed in recent years and on the top ics that will likely feature on an agenda for further reform in the new Par liament. A recent example, the insolvency of Air Canada, illustrates how the present system works in a highly complex case. The paper con I thank the following individuals, who have variously contributed advice, documents, memories and warnings in the preparation of this report. From Aird & Berlis, Lawrence J.

Crozier and Stephanie Fraser; from Industry Canada, Marc Mayrand, the Superintendent of Bankruptcy, Jacques Hains, Gilles Gauthier, Jim Buchanan and Andrei Sulzenko; from Sussex Circle, Jim Mitchell; from the Council of Ontario Universities, Ian Clark. The author remains solely responsible for errors and omissions.

Parents unmarried and living abroad Earle Birney, Canada: a case history, in F.R.

Scott and A.J.M. Smith, The blasted pine, Toronto, Macmillan, 1957.

The Americans spent more than a century, from 1793 to 1898, trying to define a stable bankruptcy regime. The financial houses of the northeast wanted solid creditor protec tion, while the agrarian south, oriented toward states rights, tended to be sympathetic to debtors, especially farmers, and wanted no federal law. Several laws were passed and th then repealed during the course of the 19 century. It was not until the reorganization of failing railroads became a matter of urgency in the aftermath of the Civil War that a stable regime was finally established under federal jurisdiction, and even then it took until 1898.

D.A. Skeel, Jr., Debts dominion: a history of bankruptcy law in America, Princeton Uni versity Press, 2001.

cludes with a summary response to questions raised by Russian col leagues.

7.1. Background: economics of bankruptcy Bankruptcy procedures are often stated as having the equitable ad ministration of the remaining assets of a bankrupt person or corpora tion as their fundamental purpose. In the words of a leading Canadian authority200, bankruptcy legislation is designed:

1. to distribute the proceeds of the bankrupts assets equitably and in accordance with a scheme of distribution;

2. to punish fraudulent debtors where there are breaches of certain standards of conduct;

3. to reform debtors whereby individual bankrupts can relieve them selves from financial obligations and become rehabilitated;

4. to promote confidence in the credit system such that credit gran tors can believe that the system operates fairly with a means of seeking redress for wrongdoing and treating all persons of a like class in the same manner. Many of the commentators on bankruptcy tend to come from a legal background. It is thus unsurprising to see an emphasis on fair and equi table procedures and the punishment of wrongdoers in their writing.

From the point of view of economic policy, however, there are really two classes of objective equity and efficiency with the latter, perhaps because of its analytic interest, usually taking precedence among eco nomic commentators. The first three objectives above address equity, while the fourth deals squarely with one of the principal issues of eco nomic efficiency. In reality, of course, all involve efficiency through the provision of a structure in which the consequences of financial failure can be administered in a manner more orderly and less wasteful of economic resources than, for example, self help or debtors prisons.

From the viewpoint of economic efficiency, two broad objectives should inform policy. One, as Bennett notes, is creating and maintain ing faith on the part of creditors that they will be dealt with fairly and swiftly in the case of the ultimate test of the debtor. Only if there is a 200 th F. Bennett. Bennett on creditors and debtors rights and remedies, 4 ed., Carswell, Toronto, 1994, 534.

widespread belief, supported by everyday administrative experience in hundreds of cases, in the predictability, speed and certainty of bank ruptcy procedures can both transaction costs and the costs of debt capital itself be minimized. Keeping such costs low is of the essence when it comes to investment and economic development. What hap pens in the desperate world of bankruptcy affects all companies by af fecting the cost and availability of capital.

The second economic efficiency objective has to do with the bank rupt estate itself, and is especially relevant to the case of corporate bankruptcy. There is a social interest in transferring the assets of the failed owners and managers into new hands as swiftly as possible so as to forestall the economic losses attendant on prolonged inaction. A company in bankruptcy will find it difficult to obtain new orders, acquire supplies and credit, and attract and retain energetic, talented workers and managers. A business that is fundamentally sound capable of profitably producing goods or services if unburdened of past errors is itself an important piece of social capital. If its structure of customers, suppliers, employment and tax contribution is destroyed, it may well be that all its individual production resources will in time find other em ployment in the economy, but only after large transaction costs, includ ing the loss of the value of the firm as a going concern. Externalities in clude such losses not provable as claims in bankruptcy as those suf fered by suppliers and their workers, a lessening of investment by those firms, customer costs incurred in searching for new suppliers, and the contribution to local charities and community life offered by the lost firm. In Canada, any tax loss carry forwards disappear on the dissolu tion of the firm, when its assets are sold off piecemeal, which is one reason that acquisition is a frequent means of ending financial distress.

There is thus a broad interest in maintaining the entity, so long as its going concern value exceeds its liquidation value. This usually means restructuring or reorganizing the business to deal with the conse quences of past errors by management or owners.

In practice, this efficiency objective is best approached by putting energetic new owners and managers who have concrete ideas about how to rejuvenate the business in charge swiftly, and at a price which assigns the consequences of past errors to those who made them.

Those who get to take a haircut, as the Street slang has it, include owners of common stock, owners of preferred stock, unsecured credi tors, secured creditors, and the Crown, in that order. The new owners typically creditors who have exchanged their debt for equity will ap point new directors, and the directors in turn can be expected to ap praise with a cool eye the managers who brought the firm to its knees.

Many will be replaced.

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