 It's think tech is a community matters is Professor Charles Booth, a professor of law at the UH law school. That's the William S. Richardson law school, who I have known. Help me on this Charlie, who I have known since 2003 or four like that something long time. Yeah. Yeah. And you've been all over the world and you've studied in solvency and comparative insolvency and systems in various countries in Asia through what 2008 Asian crisis and and since then and you travel around a lot fact you join us from Michigan. Yeah, so somebody's got to be in Michigan. Good to be here. Good to see you again. Same. So let's catch up morning in the 30s. I'm sorry for you. Let's let's catch up you're going to be on a webinar by the child school on with Pammy Pacific Asian Management Institute and Shirley Daniel on this Friday at the university. It's going to be 10 o'clock in the morning. And so if anybody wants to sign up for that you're there with three other academicians to talk about US China relations. Is it a duet or a duel or a duel or a duet. Very interesting question and and they can sign up if they want our website which is think tech away.com. Charlie, I'm so interested in your perspective of how things have been going because if you look at it from an economics point of view if you look at it from a historical point of view. The question of insolvency laws and the nature of insolvency conceptually in the law and in the fact is a barometer it's a canary in the coal mine. It's just about you know the world economy maybe where world business world welfare is going. So can you talk about how it's changed for example in Asia, as you make your comparisons since 2008. Absolutely Jed be glad to insolvency has been my window to the world, so to speak. I've been studying Asian insolvency law since the 1980s. I think I might have been one of if not the first American to do so. So I've been following it for a very long period of time. I think when I was on your show one time the quote I use when I met with a Chinese academic back in the 80s is he put it to me that insolvency was the medicine, but there was no illness. So they've not made insolvency law. Now we fast forward to the present. And really for the last 20 years, since the Asian financial crisis Asian countries have been in the process of trying to improve their insolvency laws and moving from systems that just liquidated assets of companies and basically distributed from the dollar to systems that allowed reorganization allowed saving companies and increasingly helped individuals. Why is that better. Why is that more enlightened to have a chapter 11 reorganization possibility, instead of just liquidated and then pay the owners and get out of town. That's a very good question and traditionally most systems just where liquidation is much easier. You gather the assets together, you sort it out, you divide it up, and then you remit payment to the various creditors. That will work better in a country like the US where you have a very good unemployment system. So workers will be able to get some money is they won't enough money from the company. It won't work very well in countries without a safety net where they're going to get very little if anything, if anything at all. Another problem, and this was a problem that China confronted is that when you have state owned enterprises that are huge and higher hundreds of thousands of people. If they're all unemployed, that could very well lead to social unrest. So that the Chinese are really for the last 20 years were formulating a law and that law came into effect about 13 years ago. And that law is trying to save companies because they're trying to save jobs. They don't want people to be be unemployed during times of crisis and even right now during the current pandemic, and that's the position that China has taken. And unlike the states where a lot of companies have fired people or furloughed people in China, the government policy is for companies not to let people go, and if anything, to actually increase hiring. So just recently know the big Chinese banks are doing a lot of hiring, and I read one article that one of the banks, they say is hired more recent graduates than all the major US and European banks together. Well, you know, it's interesting because China with all its and we can talk about all its problems. That all seems more humane to me. And, you know, enlightened, if you will, and then Europe the same thing Europe, it's not quite the same but it's more like humane than the United States the United States is stuck in some 19th century concept isn't it we, we don't really care what happens that much to the employees. Disagree violently, it's okay. You know, and I think I'd state that a little differently in that I think in the states because of the social safety net. You're not expecting to get as much money from the entity itself. So even if you look back to the Great Recession. Basically companies let workers go, but the government let unemployment benefits run for a long period of time. And recently until we had the stalemate in Congress the same thing this time. There were big payments going to workers. And I think the insolvency system works better. If you're not looking to the insolvency system to make payments to workers, large payments to workers because the difficulty is if that is the case, then there's not money for other creditors and systems where workers do very very well and insolvencies mean that creditors like banks do not. And then the banks are going to be reluctant to lend the companies, if they have a lower priority. And recently I helped work on with the World Bank and new law for Laos with a loud PDR and there the banks do have a lower priority than workers. And that that is one of the factors that we discussed with them from in terms of the implications that that has for for lending in that country. How does that work I mean how has it worked over your career, which is of course involved a lot of teaching and a lot of writing, but I imagine so you get a call from some government official and Laos for example, and say, you know, can you help us out because we don't think this is working quite right and we want to know what your suggestions are and maybe you should draft some statues for us and, and we'll implement them and see if we do better. Is that the way it works. That's not that's not the way it works for me know my most of my projects come through the developmental banks on the World Bank Asian Development Bank. I was very lucky when I was in Hong Kong that was involved in the first law reform project that the ADB did Asian Development Bank back in 97. And recently, we have the last, the last 15 years I've been very lucky that I've had projects both at the country level, and at international level so with other co authors I've been able to work with the World Bank on both corporate personal and solvency projects, but the latest projects and both butana and and and Laos came through the World Bank IFC. And we've had very small teams and then we work with the government to try to make the law better. Are these lawyers or combination. Basically that they're small teams but the teams have been working on a really teams of myself and someone from the World Bank both lawyers, and then in these countries would generally work with government officials often from the Supreme Court. One size fits all I mean, do you find that there's a sort of common denominator, a bunch of rules that that are fundamental for all developing countries or, or do you want to you want to sort of fit it to this specific country in some ways how does that work. Both, both because I am a history major, and I like the law to have some relevance so wherever I can. I like to to to base on what is there so I'll be more familiar, rather than just starting a fresh. But if one is starting a fresh there are certain things that one could do one change that I like to make is to make the law easily readable by lawyers and non lawyers alike. In most of Asia right now, the huge growth in businesses and this is true in China as well is with small businesses family businesses partnerships. People have very little in the way of formal education, and the difficulty in many of these countries is the insolvency law is written in language that is very, very difficult for them to understand so you want to make the concept simple, ideally make them efficient. And the first part that you mentioned, or there are some best practices that you're shooting for, and then you're trying to best to get them into the country within the legal system that they are familiar with and comfortable with. Does that mean training the judges. Does that mean showing them a better way. The training is crucial to it. So basically drafting the laws just the first part insolvency law is very procedural. So you need secondary legislation with all the rules and regulations, setting out the timeline setting out the requirements, a book of forms. And if anything allows that's what we're doing right now so the law has been enacted, but now the stage is coming where you talk about, you know what should the regulations look like what the forms look like. And then the training is absolutely key, because in many of these countries, judges have never handled insolvency cases. You have a political civil litigation where you have a plaintiff and a defendant, and insolvency you have many parties know you have workers you have creditors you know government officials your government claims so it's so multifaceted it's a very very different type of proceeding. Some of these countries are going to have a fair level of historical corruption. How do you how do you sort of write that out with either the substantive or procedural rules that you suggest to them. That's a problem that that's been a problem in many countries. And what you what you have to do is try to have a separation of powers as much as you can. So if the if the judge controls everything if the judge controls the allocation of the assets that the judge is picking all the parties on then that can actually lead to nepotism on that actually was the case in the US as well under our earlier law. So right now the modern trend, the best principles is that you want the judge only involved in the adjudicatory aspects of the of the case. And you want government regulation so I think it's very helpful to have a department that also regulates the judges and the administrators and the like. The bigger problem that exists in Asia right now is that the structure for these companies is so complicated, often with offshore holding basically involved in the process. The Cayman Islands be the eye is often where the parent company is you then have subsidiaries. There might be one in Hong Kong banking in Singapore the assets in China, and with all those moving parts. And it does happen that if the individuals behind the company want to perpetuate a fraud, then by the time the fraud is discovered you just have a real big mess. And my experience has been that no insolvency law will not work very efficiently with their justice master fraud. It just it makes it very very difficult because that just causes so many problems, especially in countries where you don't have strong ability for the administrators to really investigate and see what's going on. Do you ever get to that and you ever say look, you know, this is just a nice system we're giving you, but you need to have oversight, you need to have investigators and prosecutors and the like to stamp out the fraud because otherwise the system won't work as intended. And therefore, you know, perhaps you want to look at this that the other thing to build a better structure around investigation and prosecution. And that's why it's not just training of judges. It's also training of the administrators of the office holders who are doing the investigation. But part of the difficulty and another way of addressing this is that most cases in Asia are not just dealing in one country. You have cross border issues. So oftentimes you'll see American creditors trying to get into the US courts for the reason that you mentioned, or British creditors trying to perhaps get back to the UK. So a lot of these jurisdictional battles are creditors trying to get to a country where they think they will be treated fairly. That being said, I think most Asian countries have seen a dramatic improvement in their processes. And as their experience develops with these cases, I think you do see that the systems are getting better and much more vibrant. And then that's happened really throughout most Asian countries that have a law that is being used. Well, that takes us to, you know, putting in the context of now of current events. And a big question, you know, here in the United States, our economy is really in tatters, whether the government tells us accurately what's happening with it or not. It is pretty much in tatters and it looks like we're going to have more tatters before we're done. And I wonder about that in Asia. I wonder about that. You spoke of China, how China has taken some pretty constructive steps to avoid, you know, that and to improve its economy after its original experience with COVID. But what about Asia in general? What about the economies of these various countries you've been dealing with? How much has COVID set them back right now? Oh, it set them back a lot. It has set them back a lot. But when it comes to insolvency, every crisis is different. So if you think of the Asian financial crisis, that was a crisis that hit both the banking sector and most corporate, most corporations throughout the corporate sectors. So that was just devastation everywhere. And in many Asian countries where real estate trades on the stock market, Hong Kong's a good example, everything crashed at the same time, it was just a complete mess. The Great Recession in 2008 was primarily in the banking industry because of mortgage foreclosures and then spilled over to the US auto industry. This crisis is very, very different because it's caused by disease. So if anything, countries are trying to postpone the problems and that's where all the stimulus comes in, the payments to individuals. You're trying to keep people out of bankruptcy, out of the courts and hope that there will be a vaccine or that things will get better. So even in the States right now, through June, the number of insolvency cases, bankruptcy cases is lower than last year. Now it might increase in the third and fourth quarter if we don't get the next batch of stimulus. But right now the cases are lower. When one looks at Hong Kong, the cases are up, but only up a little, not anywhere near earlier crises. Again, because what governments are doing, they're trying to put money in individuals' pockets. The banks in most countries, and China would be a good example of this, are basically being authorized to lower interest rates. You're deferring payments. In China, they're going to do it into basically the spring of 2021. And the idea is if we can just buy time, we can buy time to a period when, again, a vaccine is working or the cases have gone down, then we can avoid all the problems from insolvency. So that makes it very, very different than earlier crises in Asia where companies were in very poor shape and wanted to use these procedures. So right now we do not see a great take up of that. But as I said, when I look at the data, I think it will change. And certainly when I talk to my friends in Hong Kong who are practicing, they say they've seen an increase in cases, not a huge number, but they've started to see a number of cases that are occurring. Well, it sounds like there's a lot of forbearance going on. For example, here, Hawaiian Electric has said, we're not going to terminate your service, even if you don't pay us, we'll get to that like in December. And there's a lot of banks, they're not pushing this, they're forbearing. And this is very healthy and good and kind and humane and everything. But there comes a tipping point where, you know, Hawaiian Electric needs to develop revenue, and the banks need to satisfy the bank examiners and so forth. And I think the tipping point comes at a certain point where they can't forbear anymore for whatever reasons, and the inability to forbear will come at a certain point to multiple organizations which have been forbearing until then. In other words, it's connected. And finally, it seems to me that when that happens, the bankruptcy court is going to be filled up because somebody who can't pay his bills now doesn't have a big problem. He doesn't need to rely on the protection of the insolvency and bankruptcy laws because nobody's pushing them. When they start pushing him, it's going to be different here and there and everywhere. How do you find that point? Where does that inflection come at? Well, I think what you've described is the way things would work in the states. So I think right now things have held back. If the stimulus does not come at a certain point, yes, people are going to be affected by the banks. There's going to be problems, there's going to be insolvencies and the courts will handle it. Throughout Asia, it's somewhat different. The reason is many Asian countries do not have a personal bankruptcy law. The laws are just for business. So the issues that you described with the individuals, they're handled but they're generally not handled under the insolvency law. Basically, when we worked on the law for Laos, we tried having individuals involved but it was only through the business capacity. They were not yet at the stage where they wanted a law for individuals generally. But you are absolutely right that if the individuals do have access to it and things get bad, they will use it. And Hong Kong is a great example of that because they went from a system and this is back to the Asian financial crisis where you literally had a few hundred cases a year where individuals filed and there was a there was a distant sense of defile because it's very hard to get a discharge to get on with your life. But once they came up with the discharge, within a few years you literally went from a few hundred cases to 25,000. So if you do have a law that works very, very well on the personal side, you'll see a huge increase. However, on the corporate side that that's not the case. If you look at the data, even when countries enact laws and they're much better. And during the Asian financial crisis, Japan was the only country where you saw a dramatic increase at first. And more recently with China, their law came into effect, I said about 13 years ago. And it took a decade before the number of cases really got to a level that equal to what they had before. And now that they're at that level and they have the judge and they have the capacity, then you see the cases start increasing. But you really can't get that system until you have the institutional capacity to handle the cases. And most Asian countries right now do not have the institutional capacity for dealing with lots and lots of cases. So it's still no very few compared to what we would see here. Let's let's let's drill down on Hong Kong because Hong Kong is in a special situation for, well, primarily because of China doing what it's doing. But Hong Kong has has COVID. People are not nearly as productive as they were. Hong Kong is making it harder and harder. Although my understanding is it's not doing that to business. It's not doing that to the banks. It's just doing that to the guy literally on the street. And I wonder where all of this takes us for Hong Kong. If they get cut off from, you know, the world funding mechanisms, which they may then Hong Kong is going to be history, it's going to be swept into becoming a city in China, all repressed and everything. Why are we then now with insolvency and with the economy of Hong Kong and with the effect of the national security law that's that's crushing free speech there. Hong Kong is in a very bad place right now that there's no doubt about it. I was in Hong Kong. Three times over the last six, seven months I was there during the student protests. I saw that. And even before the recent developments in Hong Kong, both with the pandemic and with the national security law, they already had huge issues. But Hong Kong is very adaptable and very flexible. And I think there's a few reasons not to write off Hong Kong so quickly as a financial center. One of them is that the infrastructure is all there. And people talk about Hong Kong just becoming another Chinese city. But right now it's not just another Chinese city and Chen Zen and Shanghai are years away before they could perhaps replace Hong Kong. And even if they rose to that level, the Hong Kong runs differently than those cities do. Now, that being said, the difficulties you have now are problematic. If the if the Hong Kong banks get cut off from the national banking system, well, that's that's a very different problem. And that that would that would be that would be devastating. But I don't think that's going to happen. I think I hope that doesn't happen. But at this point, we need individuals and politicians and governments to proceed cautiously and try to find a path forward here. When it comes to trade, that one we can hopefully we'll talk about on Friday, you know, with with WTO and China's and Hong Kong's claim that they're going to proceed, they want to maybe have a claim against the states. Because on the trade issue, one is going to be looking at whether or not Hong Kong is now independent. Do your customs officials in Hong Kong, are they able to exercise independence of judgment and what happens because that affects a lot of issues. So so on the trade issues, I think there are there are problems. When it comes to professional services, Hong Kong and Singapore are still the two best places in Asia, and it's people oriented. And again, for the for the near future, that that is a huge advantage. And the Hong Kong lawyers have always done a very, very good job of being able to to adapt against the backdrop of legal system that is changing very slowly, because right now it is very difficult to get laws enacted in Hong Kong. But that's been the case for a long time. Ironically, right now Hong Kong is again proposing new corporate rescue law. I started studying that back in the 1990s and they're coming up to the 25th anniversary of the first time they proposed it, and they still have not enacted it. What's a rescue law, like basically chapter 11, basically a corporate, a formal corporate rescue law, we would call it. So one cannot blame China for the problems of Hong Kong not enacting legislation. This has been a huge problem in Hong Kong for the last few decades, and it's been exacerbated by what's happening now, but it is not just something that is new. And against that backdrop that the courts have shown flexibility and the lawyers have as well. So to the extent that the Hong Kong courts lose their creativity and ingenuity, then you you certainly could have some some difficulties. But with a lot of these cases, given again, that offshore holding company structure I mentioned to you, there's other options. So that work will go elsewhere. Maybe it'll go to Singapore. So even right now a lot of the Hong Kong law firms, they have lawyers who are qualified in Singapore and they can actually move those people to Singapore or have that work done elsewhere. So things will will change as the situation develops. Yeah, well flexibility and that that that means that Hong Kong may lose some of its special special sauce. But let me let me ask you this and this is a hard question to ask with only a few minutes left to talk about it. So there's a triangular thing happening is Hong Kong, of course, as China we're pushing all the buttons these days, not only in Hong Kong but you know this morning's paper in India and the Galwan Pass and in the Himalayas in Mongolia recently. They've been really mean to Tibet. And of course they're, they have aspirations on Taiwan and the South China Sea, all that stuff all that aggressive geopolitical things they want. And then the US which is in a sort of upside down position right now, in terms of foreign policy, you know, toward Asia in general. This is pretty complicated now. And I guess I'll shave the question down to ask you what what do you think the US ought to do for its own interests to preserve Hong Kong to preserve a robust sort of healthy relationship, if we can get back to that with China. Well, first of all, I think you just made the perfect introduction to why people should tune in on on Friday. Absolutely. Listen, it's very, very tricky time right now with everything. My own approach is to proceed much more multilaterally and come up with a coherent policy that is discussed with allies, and that you are discussing in a way that does not poor kerosene on the fire. I think what we've seen too much lately are individual statements that are made at a press conference at a briefing and no one knows if it's official statement or what's happening. And we don't seem to have a coherent policy that is that is being developed in an organized fashion. So I think that would be absolutely huge. Secondly, I think one has to bring the tensions down a bit. And thirdly, even with the situation in Hong Kong, there's ways of proceeding that rather than just announcing things, you can go through proper channels. Now, if you think that there has been a change in status then then then proceed accordingly, but just don't don't rush into things. So I think that the US needs to needs to be strong, but also needs to work with its allies, and try to take the situation forward and in a better manner. Well, one last thing and that is pretty much about Hong Kong. Is this a good time for me or my friends to go to forgetting about the travel restrictions for a moment. Economically, is this a good time academically terms of free speech and safety under the national security law. It's a good time for me to go there or should I avoid it. Well, first of all, as you said, we can't go because we're going to be quarantined when you go there. And then, since you're in Hawaii, you're going to be quarantined when you come back. So you guys set aside a month. When it comes to personal safety, Hong Kong is very, very safe as a place to as a place to go when it comes with on the political front one has to be careful, especially not a tourist not as much as permanent residents. One has to sort of be careful to navigate it. But for myself, you know, but for the restrictions because of the pandemic, I would head over there. I love Hong Kong and I'd like to see what's happening sort of, you know, on the street myself. And you spent academic years there. During pandemics, yes, you it is a very nice time to go because there's a few tourists there and things that are less expensive. Charlie, thank you so much for joining me this morning. We'll see you and we'll discuss these things in greater detail on Friday morning at 10 o'clock on the webinar, people can sign up to hear you and the other three panelists all academicians from various places on think tech Hawaii.com. It's great to see you for the discussions. Thank you. See you on Friday. See you on Friday.