Intra group debts

(a) The responsibility of any other company in the group for the external debts of the insolvent company (being all debts owed by the insolvent company except for those owed to related group companies, i.e. intra group debts )

(b) The treatment of intra group debts (claims against the debtor company by related group companies) and

Group responsibility for external debts

Intra group debts may be dealt with in a number of ways.

Group of 77 (on debt)

Insolvency regimes look to a number of different circumstances or factors in the assessment of whether a related or group company should bear responsibility for the external debts of an insolvent member of the group.

C. The Group of Eight proposals for debt cancellation for Heavily Indebted Poor Countries

Other approaches involve classifying intra group transactions differently from similar transactions conducted between unrelated parties (e.g. a debt may be treated as an equity contribution rather than as an intra group loan), with the consequence that the intra group obligation will rank lower in priority than the same obligation between unrelated parties.

Group of 77 (core group on debt)

Group of 77 (core group on debt)

(c) Commencement of insolvency proceedings by a group company against a related group company.

Under some insolvency laws that provide for consolidation, intra group obligations are terminated by the consolidation order.

An enterprise group company may determine its internal financial management system by itself.

It should be noted that insolvency laws providing for consolidation do not affect the rights of secured creditors, other than possibly the holders of intra group securities (where the secured creditor is a group company).

Group of 77 (on the draft resolution on debt)

Furthermore, where the debtor company belongs to a group of companies, it may be difficult to untangle the specific circumstances of any particular case to determine which group company particular creditors dealt with or to establish the financial dealings between group companies.

With respect to debt, while we should welcome the recent decision of the Group of Eight to assist 14 highly indebted poor countries of Africa, including Senegal, we must acknowledge that the problem of African debt remains acute.

In such a case, creditors of a group company with a significant asset base would have their assets diminished by the claims of creditors of another group company with a low asset base.

The G 8 countries have agreed on substantial debt relief for a number of countries.

One possible advantage of addressing these issues in an insolvency law is to provide an incentive for corporate groups to continuously monitor the activities of companies within the group and take early action in the case of financial distress of a member of that group.

The African Group welcomed the proposal by G8 leaders for 100 per cent cancellation of debt owed by 14 African HIPC completion point countries and the Paris Club negotiations for the comprehensive debt treatment for Nigeria as important steps in addressing the issue of debt sustainability.

At the last summit, in May 1998, the group stated its support for the speedy and determined extension of debt relief to more countries, within the terms of the HIPC initiative.

We should also commend the G 8 countries on what they have done to provide debt relief to 16 African countries but other countries also suffer from debt, and the G 8 should give similar attention to countries that have the same problems.

13. The core of the debt problem that remains to be solved is the unsustainable debt positions of the group of 41 HIPCs.

Group of 77 (core groups on debt and international financial systems)

We welcome the decision of G 8 nations to write off the debt of 18 highly indebted poor countries in the amount of 40 billion.

His delegation appreciated the debt relief measures undertaken by creditor countries within the framework of the Paris Club, and their cancellation and equivalent relief of bilateral official debt.

On debt, the position of the Group of 77 and China is well known.

They included the recent G 8 decision on the cancellation of debt owed by 18 heavily indebted poor countries, among them Mali.

Most of the increase resulted from the domestic debt component.

Norway therefore supported the Group of Eight proposal for multilateral debt cancellation.

In either case, however, it is common for insolvency laws to address these issues of intra group liability on the basis of the relationship between the insolvent and related group companies in terms of both shareholding and management control.

It may introduce significant uncertainty that affects the cost of credit, in particular when the decision about responsibility for group debts is made by a court after the event of insolvency and involve accounting complexities concerning the manner in which liabilities are treated within the group.

My delegation welcomes the commitment made recently at London by the G 8 to cancel the multilateral debt of the 18 most indebted countries.

My delegation also welcomes the recent proposals of the G 8 that have now led to the cancellation of the outstanding debt of heavily indebted poor countries.

EU member States recently agreed to support the G 8 agreement to write off debt.

His delegation also welcomed the decision by the Group of Eight fully to cancel the multilateral debt of heavily indebted poor countries and encouraged the donor community to find solutions to the debt problems of all least developed countries.

Kuwait applauded the Group of Eight (G 8) and European Union initiatives to cancel the debts of the poorest and heavily indebted countries and hoped that the debts of all developing countries could be rescheduled and alleviated in accordance with the Paris Club's Evian approach.

Under some insolvency laws, intra group transactions may be subject to avoidance proceedings.

The Group expressed the hope that other poor countries outside the HIPC framework would also soon be considered eligible for similar treatment of their debts.

A consortium would not be a suitable vehicle for borrowing funds, since in many jurisdictions the consortium members would have a residual and unlimited liability for the obligations of the consortium.

The Group of Eight initiatives on debt relief and on Africa are important contributions.

This year, the Group of Eight countries have pledged increased aid and debt cancellation for low income countries.

With regard to debt, speakers welcomed the progress made this year, in particular the G 8 debt initiative.