IMF Working Paper: Exchange Rate Liberalization in Selected Sub-Saharan African Countries Successes, Failures, and Lessons

Many sub-Saharan African (SSA) countries liberalized their economies in the 1980s and early 1990s. This paper reviews the foreign exchange regime reforms in selected SSA, and their associated macroeconomic policies and economic performance during and after these reforms were undertaken. Before liberalization, most of the reviewed countries were characterized by extensive foreign exchange rationing, sizeable black market premiums, and declining per capita real income. Today, the countries that successfully reformed look markedly different. Rationing and parallel market spreads are a distant memory, and per capita income has increased sharply.

IMF Working Paper: Determinants of Bank Interest Margins in Sub-Saharan Africa

Financial intermediation is low in sub-Saharan Africa (SSA) compared to other regions of the world. This paper examines the determinants of bank interest margins using a sample of 456 banks in 41 SSA countries. The results show that market concentration is positively associated with interest margins, but the impact depends on the level of efficiency of each bank. In particular, compared to inefficient banks, efficient ones increase their margins more in concentrated markets. This indicates that policies that promote competition and reduce market concentration would help lower interest margins in SSA. The results also show that bank-specific factors such as credit risk, liquidity risk, and bank equity are important determinants of interest margins. Finally, interest margins are sensitive to inflation, but not to economic growth or public or foreign ownership. There are regional differences within SSA regarding the level of interest margins even after controlling for other factors.

IMF Concludes 2013 Article IV Consultation Mission to Mauritius

An International Monetary Fund (IMF) mission led by Martin Petri visited Port Louis during January 16–30, 2013 to conduct the discussions for the 2013 Article IV consultation with Mauritius. The mission met with The Honorable Vice Prime Minister and Minister of Finance and Economic Development Xavier-Luc Duval, Governor of the Bank of Mauritius Rundheersing Bheenick, other senior government officials, as well as representatives of the National Assembly, the private sector, and civil society.

At the conclusion of the visit, Mr. Petri issued the following statement today in Port Louis:

“Prudent macroeconomic policies continued in 2012, resulting in good fiscal and inflation outcomes. The challenge in 2013 will be to accelerate growth in a still difficult external environment and to set the foundation for future growth, through increased public and private investment and productivity advances. In addition, medium-term fiscal consolidation should continue to reduce external imbalances and economic vulnerabilities. Staff projects that growth in the real gross domestic product in 2013 will increase to 3.7 percent, fueled by strong growth in fishery, information & communications technology, and financial services. Investment is likely to increase, driven by public investment projects, while private investment is expected to remain subdued.

“At around 4 percent, inflation is low at the moment, but inflationary pressures could emerge in 2013 from wage pressures in the private sector linked to the decision to increase public sector wages and from possible adjustments in some administered prices. The mission projects headline consumer price index inflation to accelerate to 5.7 percent on average in 2013 and decline thereafter. The current monetary policy stance is broadly appropriate, but the authorities should stand ready to tighten monetary conditions if inflation accelerates. The developments in the real estate sector should continue to be monitored carefully, both in terms of price and rental growth and with respect to the impact on the banking sector. Overall, the banking sector appears robust, and the financial system has proven resilient.

“The 2013 budget aims to support growth and ensure sound macroeconomic management. Compared to 2012, the overall fiscal deficit is projected to increase modestly. Given the need for debt reduction over the medium term, and the likely limited impact of a discretionary fiscal stimulus in a small open economy with a flexible exchange rate regime, staff would recommend a fully neutral fiscal stance in 2013, similar to the one achieved in 2012. The authorities’ medium-term fiscal consolidation plans are welcome to reduce external imbalances, mitigate debt vulnerabilities and rebuild policy buffers.

“The persistently large external current account deficit reflects low savings and could give rise to future vulnerabilities. This should be addressed through policies to promote national savings and foster competitiveness, which will require longer-term adjustments to reduce fiscal deficits and to help build human capital and infrastructure. These policies should be initiated soon or reinforced, and implemented steadfastly, particularly for investments and reforms related to public utilities and road decongestion. The Mauritian authorities are cognizant of these challenges and have continued their efforts to implement structural reforms to address key growth-impeding bottlenecks. In view of Mauritius’ well-established track record as an economic reformer with a dynamic private sector and robust institutions, these challenges appear manageable, but they require renewed effort.

“The IMF stands ready to assist the authorities in the implementation of their economic program, including through the provision of technical assistance, and looks forward to continued fruitful policy dialogue in the period ahead.”

Mauritius: Speech of FSC Chief Executive at MIPA Forum, FSC House

Forum on the changes brought to the FRA 2004 organised by MIPA

Welcome Speech by FSC Chief Executive Miss Clairette Ah-Hen

FSC House, Tuesday 29th January 2013

Ladies and Gentlemen

Good afternoon

We welcome the initiative of the MIPA for holding this forum, which provides an opportunity to discuss some of the amendments brought by the Economic and Financial Measures (Miscellaneous Provisions) Act 2012. It is also an opportunity for the FSC to welcome you all at the FSC House.

The purpose of this forum is to highlight the changes brought to the Financial Reporting Act 2004 in December 2012 by the Economic and Financial Measures (Miscellaneous Provisions) Act 2012. The change brought in this piece of law is not isolated for only Mauritius but it is responding to the calls made internationally for a more substantial role to be played by auditors and accountants across the globe.

The global financial crisis has sparked a series of high level inquiries into the role and effectiveness of audit, be it in the US, Europe or the UK, while in Singapore regulators are engaging actively with stakeholders to assess how audit can be enhanced. The IAASB, the standard setter for auditing, is currently pursuing improvements to the auditors’ report. I am sure you will have many other opportunities to discuss these issues with MIPA and FRC.

Closer to use, we have the World Bank visiting Mauritius from January 24, 2011 to February 4, 2011 to undertake the Second Mauritius Report on Observance of Standards and Codes with respect to Review of Accounting and Auditing Practices (“ROSC A & A”). The key recommendations contained in the ROSC A&A report relates to the Statutory Framework, the profession - strengthen MIPA, Professional Education and Training, Ensuring compliance with accounting and auditing standards. I am sure, all of us here present would like to see these put in place and I do believe that the Economic and Financial Measures (Miscellaneous Provisions) Act 2012 contains some of these recommendations.

We at the FSC, we look forward to a close Collaboration and cooperation with all stakeholders, be it with the FRC with which the FSC signed an MOU last year or FIU with which we have an MOU which dates to quite some time back or with Accountants and auditors through workshop industry updates. We all share that common goal which is to see Mauritius develop its financial services sector.

I wish you all a successful deliberation.

Thank you for your attention.

Mauritius: New Regulations for Import of Second-Hand Vehicles

The Minister of Industry, Commerce and Consumer Protection, Cader Sayed-Hossen, recently announced that following numerous complaints and representations made by the Associations of motor car dealers and the general public as regards the importation of damaged and accidented vehicles on the local market, his ministry has amended the Regulations to make it mandatory for every importer of second-hand motor vehicles to submit an auction sheet.

With the new Regulations which will be effective on 1 March 2013, each importation of second-hand motor vehicle should be supported by an auction sheet which will specify the grade of the vehicle which shall not be below 3.5 on a scale of 1 to 5. The auction sheet is an important document which is issued by the auctioneers certifying the details of the vehicle.

Authorised dealers in second-hand motor vehicles will also have to affix the auction sheet and the Pre-Shipment Certificate on the windscreen of each vehicle at their showroom premises together with an explanatory note specifying the grade of the vehicle as per the auction sheet of that particular vehicle. This measure will go a long way in protecting the consumers as they will be more informed as to the exact conditions of the vehicles being purchased.

In the same line, Cader Sayed-Hossen stated that the Ministry of Industry, Commerce and Consumer Protection will regulate the importation of second-hand motor vehicles by agents acting on behalf of importers. “It has been noted that over the years that some persons import their vehicles through ‘agents’ who are not recognised by law and act merely as facilitators against payment of fees. This state of affairs has given rise to a number of complaints where individuals have been penalised by unscrupulous ‘agents’”, minister Sayed-Hossen opinioned.

With a view to remedying this situation, the ministry proposes to regulate the sector by introducing new Regulations. The aim is to provide a legal framework to allow the “agent” to operate in a fair and transparent manner while protecting the interests of the consumers. Draft regulations have been prepared and are presently at the State Law Office for vetting and further discussions.

Vistra acquires BSI Trust Singapore from BSI Bank AG

BSI Trust Corporation (Singapore) Limited., owned by BSI Bank AG has been acquired by Vistra, a global independent player in the trust and fiduciary sector, the two companies announced today. 

The acquisition, approved by the Monetary Authority of Singapore (MAS) will see all BSI Trust Singapore's services and existing business transferred to Vistra by the end of January 2013.

The decision to sell the company is a reflection of the rapid growth of BSI Bank's wealth management portfolio over the past two years and the need to focus on these core advisory services.

This strategic decision will provide a strong platform of specialist solutions for BSI clients transferring their trust needs to Vistra. Private banking clients' international trust requirements are evolving and increasingly require more sophisticated trust solutions for asset protection and estate planning.  Vistra is equipped to provide clients with a broad range of trust and fiduciary services through its network of 25 offices across 19 jurisdictions. Vistra will be one of the preferred service providers on BSI's open architecture platform.

Vistra Singapore Managing Director, Jean-Pierre Koolmees said, "We are very proud of the reputation and the international capability we have established in the trust sector. Our aim is to provide the highest standard of service to the clients of BSI Trust Singapore who have now entrusted us with their business."

"The highly-experienced team joining us from BSI Trust Singapore will ensure continuity for their existing clients, as well as augment Vistra's overall offering to clients," Mr. Koolmees added.

Haiti: Soon Haitian-flagged vessels

Alix Célestin, the Director General of the National Port Authority (APN), accompanied by the Technical Director, Canégy Nacesse Pierre and of Philippe Olivier, Special Advisor to the Prime Minister, met in Paris the management of "OCRA Worldwide" which handles the registration of merchant ships and pleasure craft, to finalize the procedures allowing the Haitian flag to fly to the masts of merchant ships, super yachts and yachts that ply the world's seas.

The mission of the Primature and of the APN, is part of the policy of openness of the Martelly-Lamothe government , which requires that the presence of Haiti, occurs in all fields of economic activity, in order to send to the whole world, the clear message that "Haiti is open for business."

From a financial standpoint, it will be an important contribution to the economy of Haiti, with the income generated by the registration of these Haitian-flagged vessels.

Haïti: Bientôt des navires sous pavillons haïtien

Alix Célestin, le Directeur Général de l’Autorité Portuaire Nationale (APN), accompagné de son Directeur Technique, Canégy Nacesse Pierre et de Philippe Olivier, Conseiller Spécial du Premier Ministre, ont rencontré à Paris les responsables de la « OCRA Worldwide » qui s'occupe de l'enregistrement des navires marchands, et bateaux de plaisance, pour finaliser les démarches permettant au drapeau haïtien de flotter comme pavillon, aux mats des navires marchands, super yachts et voiliers de plaisance, qui sillonnent les mers du monde entier.

Cette démarche de la mission de la Primature et de l'APN, s'inscrit dans le cadre de la politique d'ouverture du Gouvernement Martelly-Lamothe, qui veut que la présence d'Haiti, se manifeste dans tous les champs d'activités économiques, en vue de lancer au monde entier, le message clair que « Haiti is open for business».

Du point de vue financier, ce sera d'un apport important, pour l'économie d’Haïti, grâce aux revenus générés par les enregistrements de ces navires sous pavillon haïtien.

Chatham House - Madagascar: Time to Make a Fresh Start

Programme Paper

Bob Dewar, Simon Massey, and Bruce Baker, January 2013

• Madagascar's presidential and legislative elections are scheduled for 2013. These elections could herald a fresh start for Madagascar which had been hindered by the intense rivalry between the country’s two leading political protagonists: Andry Rajoelina, president of the incumbent transitional regime, and Marc Ravalomanana, the ousted head of state. Both men have finally indicated they will not run for office in the 2013 elections: keeping to their word is vital.  

• Regional and international partners are already coordinating their management of the crisis. They must now step up their efforts to steer Madagascar’s political class and military towards the implementation of a settlement that maintains civil peace and delivers credible elections. Then, with renewed donor support, the country can hope to revive exports, investment and a sustained drive for poverty reduction.

• Madagascar may not show levels of violence and traumatic disruption to compare with those in 'hot' crises elsewhere, but it is a slow-burning social and economic disaster. The overthrow of constitutional rule in 2009 provoked cuts to external aid and the exclusion of Malagasy exports from vital access privileges to the important US market.

• Despite donor efforts to maintain a drip feed of support for critical services, the UN reports that deprivation has deepened, particularly among children, in a country where incomes were already among Africa’s lowest. The crisis has also hurt a once vigorous manufacturing sector and threatens lasting damage to a natural environment of global importance.

• Madagascar’s economic development depends on full access to international aid, investment and confidence. If political manoeuvres or administrative failings undermine the democratic credibility of the elections, the international community and the African Union will need to refresh their strategy. They will need to reconcile the credible defence of democratic principles with reviving the development and growth denied to Madagascar’s people over the past four years of political deadlock. 

Download paper here

Mauritius: Double Taxation Avoidance Agreement with the Republic of Rwanda

A Double Taxation Avoidance Agreement was signed with the Republic of Rwanda in July 2001 and the Agreement came into force in April 2003. In June 2012 the Republic of Rwanda submitted to Mauritius a notification of termination of the Double Taxation Avoidance Agreement.

In that regard, Mauritius initiated discussions with the Rwandan Government and the two parties have agreed to renegotiate the existing Agreement. Thus, a first round of negotiations was held in Kigali in November last year. A second round of negotiations is scheduled to take place in the second week of February 2013 in Mauritius. One of the pending issues that remain to be resolved concerns the timing of the entering into force of the renegotiated Agreement and the termination of the existing one. Mauritius has proposed that the existing Agreement should be terminated only upon entry into force of the renegotiated Agreement.

Once the discussions on the renegotiated Agreement are finalized, Mauritius will press for an early signing and ratification of the Agreement so that cross border trade and investments between Mauritius and Rwanda can continue to take place under the most conducive environment.

Jersey starts the year with further award success for its finance industry

Jersey has been judged the International Financial Centre of the Year in the Citywealth International Financial Centre Awards 2013 in London.

Now in its second year, the Citywealth IFC Awards were launched to promote excellence and adherence to global tax standards and for the first time this year they included a category for top International Financial Centre. Citywealth is a leading events and publishing group that connects global wealth management and private client experts.

The awards are based on votes online which are monitored by an international panel of judges from all sectors with experience of working with advisors in all the jurisdictions covered. In the IFC award category, Jersey received 33 per cent of all the votes including a proportion of that total (22%) directly from the London market, (18%) from Switzerland and (8%) from family offices and wealthy private individuals.

Karen Jones, editor of Citywealth, commented:

“Jersey has received criticism and praise for implementing tough standards for those operating on the island to help businesses comply with international requirements as the world takes a dim view of tax evasion. In 2013 their strategy is starting to pay off and this win consolidates their position as a leading international finance centre.”

Gary Hales, Jersey Finance’s business development representative in London, received the award on January 24th at the ceremony at the Landmark Hotel in London hosted by broadcaster Michael Portillo. 

Geoff Cook, CEO of Jersey Finance commented:

“It’s important that Jersey continues to be judged positively and consistently for the quality of its services and regulation and we are delighted to have secured this latest award from Citywealth, the fourth such accolade Jersey has received in the last twelve months.”

Last year, Jersey was judged as the ‘best offshore centre’ in the annual investment management awards organised by Global Investor magazine, part of Euromoney. It also won the award of ‘best international finance centre’ at the International Fund & Product Awards organised by Incisive Media and ‘outstanding international wealth financial centre’ in the Private Banker International Awards.

Mauritius: New service fees for Tax Residence Certificate

New service fees will be charged by the Mauritius Revenue Authority for the issue or renewal of the Tax Residence Certificate (TRC) as follows:

Collective Investment Scheme: USD1,000 per TRC

Other cases: USD200 per TRC

TRC will now be issued in a new format

Mauritius: Double Taxation Avoidance Agreement (Republic of Zambia) Regulations 2012

Double Taxation Avoidance Agreement (Republic of Zambia) Regulations 2012

Mauritius: FSC Conducts Onsite Inspections for 159 Management Companies

The Financial Services Commission (FSC) has, under phase 1 of onsite inspections programme for the year 2012, conducted inspections for some 159 management companies (MC). In the wake of this exercise, 65 inspections reports have been generated out of which 45% are clean reports.

In this context, the FSC organised a workshop yesterday at its seat in Ebène targeting Directors and Senior Management representatives to discuss the key findings of the reports. It is noted that most of the MCs have proper systems for both internal and external controls and are in compliance with the Financial Services Act (FSA) adopted in 2007, which simplify the regulatory regime and consolidate the legislative framework of the global business sector.

However, some drawbacks have also been detected where some MCs do not comply with the norms under the FSA 2007 and the Customer Due Diligence requirements are not met fully. Other shortcomings pointed out are that some MCs have neither the methodology to conduct independent checks nor good record keeping, in addition to weaknesses with regard to client monitoring.

In her address at the opening of the workshop the Chief Executive of FSC, Ms Clairette Ah-Hen, recalled that the role of the commission as a regulator of the global business sector is to ensure that a licensee is complying or has complied with the requirements as outlined in the FSA 2007. In so doing, this will maintain the reputation of Mauritius as an International Financial Centre and also as a jurisdiction of substance, she said.

Ms Ah-Hen, cautioned that the FSC will take severe actions against the MCs which are not in compliance with the financial laws. The failure of not abiding to the rules may result in the revocation of the licence, she warned.

It will recalled that, the FSC is introducing as from this year an in-principle approval system for a certain period of time whereby all MCs will be required to put in place the appropriate resources and appoint adequate staffs. A MC will be issued with a licence only after the FSC has conducted an inspection to see whether the criteria have been met and upon satisfactory results.

Jersey Finance welcomes pan-Crown Dependencies Double Taxation Agreements

Jersey Finance has welcomed the signing of Double Taxation Agreements (DTAs) between the authorities in Jersey and counterparts in Guernsey and the Isle of Man as a reflection of the Crown Dependencies’ commitment to cooperation on tax matters.

The DTAs ensure that both corporate and personal financial flows, such as business profits and dividends, and income from pensions or employment, between the jurisdictions are not taxed twice. They also reinforce Jersey’s commitment to exchanging information on request through its existing network of Tax Information Exchange Agreements (TIEAs).

The agreements were signed this week in London by Assistant Chief Minister with responsibility for External Relations for Jersey, Senator Sir Philip Bailhache, Deputy Chief Minister of Guernsey, Deputy Jonathan Le Tocq, and Treasury Minister for the Isle of Man Eddie Teare MHK.

Geoff Cook, CEO, Jersey Finance said:

“As well as facilitating further business between the Crown Dependencies by affirming a robust taxation framework for financial flows between Jersey, Guernsey and the Isle of Man, these DTAs also underline a shared commitment to meeting international standards and cooperating at an industry and a political level. The message is a powerful one and should positively impact the reputation of the Crown Dependencies on the international stage and consequently Jersey’s attraction to investors.”

The development means that Jersey has now signed seven DTAs as well as 29 Tax Information Exchange Agreements (TIEAs).

ICSA: New guidance to help non-executive directors 'stay out of jail'

A new guidance note published today by the Institute of Chartered Secretaries and Administrators (ICSA) is designed to help non-executive directors avoid a range of penalties – from fines, through to disqualification and imprisonment – if they fail to carry out their various duties.  

Focusing particularly on the duty to exercise reasonable care, skill and diligence, the guidance note covers such issues as:

• Taking responsibility for their own on-going training and continuous development;
• Being prepared to provide independent oversight and constructive challenge;
• Insisting on receiving high-quality information;
• Making decisions objectively in the interests of the company and
• Avoiding conflicts of interest

Prospective non-executives are also advised to undertake their own due diligence before taking on the role, satisfying themselves that the company is one in which they can have confidence, and can make a strong and value added contribution.

Seamus Gillen, ICSA’s Policy Director said:

‘Becoming a director confers many privileges – of power, influence and status.  But the position also carries great responsibilities.  No director wants to make the kind of mistake that sees them lose their house, or their reputation, and even less face legal action. This new guidance directly addresses a question we are often asked – what do we need to do to stay out of jail?  It will help directors conduct themselves in a way which avoids lasting damage both to themselves and their company’

The Global Forum on Tax Transparency welcomes Romania as new member

Romania has joined the Global Forum on Transparency and Exchange of Information for Tax Purposes. As the 118th member of the Global Forum, it will participate in the peer review process which encourages all countries to adopt effective exchange of information in tax matters. 

“We are delighted to welcome Romania as a new Global Forum member”, said OECD Secretary-General Angel Gurría “Romania will now be among the jurisdictions that are directly involved in the international effort to make tax systems worldwide transparent and fair to all, and I look forward to strengthening our mutual cooperation in this important field.”

The Global Forum’s aim is to ensure that all jurisdictions adhere to the same high standard of international cooperation in tax matters and governments come together to fight and prevent tax evasion. Membership of the Global Forum keeps growing - a clear indication of the value of its work to countries worldwide.   

Consistently supported by G-20 leaders, since 2010 the Global Forum has published 88 peer review reports containing 616 recommendations to help jurisdictions improve their cooperation in tax matters. As a result, more than half of the countries reviewed have already introduced or proposed changes to their laws.

Out-Of-Court Restructuring Guidelines for Mauritius

OUT-OF-COURT RESTRUCTURING GUIDELINES FOR MAURITIUS

1. INTRODUCTION

It is a generally accepted global principle that restructurings achieved outside formal insolvency proceedings yield higher stakeholder returns for those involved, as these are more flexible and efficient than court proceedings.

Consequently, before an insolvency case is brought to court one option available to the debtor and creditors involved is an informal workout, or out-of-court restructuring, where both the debtor and the creditor(s) attempt to come to a private arrangement for the adjustment of the terms of the debt and to allow the debtor to continue normal business operations.

It is generally accepted that out-of-court workouts:

• Allow viable businesses to continue to operate and to emerge successfully from financial distress;
• Allow creditors generally, but specifically lenders, to reduce losses;
• To a large extent avoid the social and economic impact of major business failures’
• Reduce pressure on the courts;
• Better serve other key stakeholders, such as customers, employees, suppliers and investors, since businesses subject to out-of-court restructuring proceedings continue to trade;
• Are more efficient and effective than court procedures due to the shorter time frames and higher recovery rates;
• Assist the commercial community in developing confidence in the fairness, transparency and accountability of insolvency and restructuring proceedings;
• Can apply to any form of business enterprise.

The approach taken in these guidelines is that of INSOL International’s “Statement of Principles for a Global Approach to Multi-Creditor Workouts”. The INSOL principles are highly regarded around the world, and have formed the basis for out-of-court restructuring guidelines in various jurisdictions.

2. OBJECTIVES AND SCOPE OF THESE GUIDELINES

These guidelines are intended to provide business entities (debtors), creditors and government agencies with guidance for out-of-court restructurings.

The principles contained in these guidelines, and the guidance notes for the implementation of the principles, are aimed at providing debtors and their creditors with a framework based on international best practices in this field.

The principles contained in this guide may also be used, to the extent that they are compatible, in steering negotiations between the debtor and the creditors in formal restructuring mechanisms contained in the Insolvency Act 2009.

3. KEY CONCEPTS AND TYPES OF CREDITOR WORKOUTS

3.1 Expected Outcomes

The expected outcome is a negotiated restructuring plan between the debtor and the relevant creditors, allowing the debtor’s business to continue and to ensure the total or partial coverage of its debt (“relevant creditors” are usually creditors having the largest claims, or those crucial to the continuation of the business of the entity; these creditors will usually be the debtor’s bankers, but it may also include other major creditors such as financing creditors, landlords and major suppliers). Should a negotiated restructuring plan not materialize, the possible alternatives are the commencement of pre-insolvency court proceedings (such as a scheme of arrangement), or formal insolvency proceedings. Whatever the outcome, the use of the information collected during the out-of-court workout process may lead to expedited formal proceedings.

3.2 Types of Creditor Workouts

Workout negotiations may be:

• Bilateral negotiations between the debtor and a creditor, leading to the rescheduling of payments and/or debt forgiveness;
• Multilateral negotiations between the debtor and its major creditors, leading to debt rescheduling, debt forgiveness or the granting of other incentives, as agreed by the parties.

3.3 Difference Between Out-of-Court Workouts and Formal Restructuring Proceedings

The most important differences between out-of-court workouts and formal insolvency proceedings are:

• Out-of-court workouts do not seek to vary existing entitlements or bind nonconsenting creditors;
• Out-of-court workouts are consensual and do not threaten or compromise the existing legal rights of the debtor and creditors;
• Both the process adopted as well as the arrangements between the debtor and its creditors in an out-of-court workout are flexible, may be achieved in a shorter period of time and with a lower risk relating to the debtor’s business reputation when compared to formal insolvency proceedings;
• Out-of-court proceedings allow a more favourable context for obtaining additional finance.

4. PRINCIPLES FOR OUT-OF-COURT RESTRUCTURING GUIDELINES IN MAURITIUS

FIRST PRINCIPLE

Where a debtor finds itself in financial distress, all relevant creditors should be prepared to co-operate with each other, and the debtor, to provide sufficient (though limited) time – the “Standstill Period” - for information about the debtor to be obtained and evaluated, and for proposals for resolving the debtor’s financial difficulties to be formulated and assessed, unless in a particular case such a course is inappropriate.

Guidance Notes:

No debtor has a right to a Standstill Period in order to conduct an out-of-court workout: this is a concession by creditors, and not a right of the debtor. The debtor, of its own accord or through its advisers, needs to assess whether there is a realistic possibility that its financial difficulties can be resolved with a view to its long-term viability. If restoring the long-term viability of the debtor is not possible, alternative remedies, such as the liquidation of the debtor by way of formal insolvency proceedings, should be considered.

The purpose of the Standstill Period is to provide the debtor with sufficient time to prepare a restructuring plan that will resolve the debtor’s financial difficulties. The restructuring plan must demonstrate that the distressed business is capable of operating profitably, as well as the extent to which it will be able to repay its debts. There is no prescribed minimum information that the restructuring plan should contain, but it is imperative that the plan should demonstrate that there is a reasonable prospect of the business becoming viable in the foreseeable future. Matters normally dealt with in a restructuring plan would include the following:

• Projected trading profit and loss for the foreseeable future;
• Cash flow forecasts;
• Sources of additional capital;
• Any proposed modification of creditors’ rights (for example by deferral, variation or debt forgiveness);
• Significant changes in management or ownership.

The reference to all “relevant creditors” refers to those creditors whose rights will be affected by the proposed restructuring contained in the plan.

The unanimous support of all relevant creditors is essential. The number of participating creditors should therefore be kept to a minimum in order to reduce the complexity of the negotiations. If support for the plan by creditors is inadequate, the restructuring will be unable to go ahead.

The manner in which this principle is expressed makes it clear that what is hoped will develop over time is a willingness by creditors to participate in an out-of-court restructuring as a matter of course, unless such a course of action is clearly inappropriate in the circumstances.

The Standstill Period should be limited to the time that is required to produce a viable restructuring plan, or to determine that such a plan cannot be produced within an acceptable time limit. The Standstill Period will vary from case to case, although usually it should not be longer than a few weeks.

During the Standstill Period, it is vital that the relevant creditors receive adequate reliable information to enable them to assess the debtor’s financial position, to understand what has caused the underlying financial problems, and to evaluate any proposed solutions that are put forward. It must be borne in mind that at the conclusion of the negotiating process, the relevant creditors will be requested to approve the proposed solution. If the relevant creditors do not have absolute confidence that they have received adequate and accurate information, as well as sufficient time to review it, they will not be in a position to approve the proposed course of action.

One of the greatest challenges facing an out-of-court restructuring plan is the tendency of individual creditors to try and pressure the debtor for payment. The greater the likelihood of such payments being made, the smaller chance there will be of the restructuring plan succeeding.

SECOND PRINCIPLE

During the Standstill Period, all relevant creditors should agree not to take any steps to enforce their claims against, or to reduce their exposure to, the debtor (this would exclude the disposal of their debt to a third party). However, creditors are simultaneously entitled to expect that their position relative to other creditors will not be prejudiced during the Standstill Period.

Guidance Notes:

The aim of this principle is to achieve stability among creditors during the Standstill Period, and to maintain the status quo regarding their claims as they existed immediately prior to the Standstill Period. However this may achieved, all relevant creditors must be comfortable and confident that in deciding not to pursue their individual enforcement remedies, they will not be prejudiced in relation to other creditors should a consensual way forward for the debtor not be found. Each creditor’s ranking relative to the other creditors must be neither worsened nor improved during the workout process. 

The appeal of the out-of-court restructuring process can be greatly enhanced by the involvement of qualified professional advisers (where these are available), or government agencies that have moral authority and who can earn the respect of the creditors. In the context of Mauritius there is an important role for the Bank of Mauritius, the Mauritius Bankers Association and the Insolvency Service in not only sponsoring and promoting the out-of-court restructuring guidelines, but also by publicly or formally endorsing them.

Although a written agreement for a Standstill Period is not necessary in cases where an effective informal understanding amongst the relevant creditors exists, in those cases where the Standstill Agreement has been reduced to writing it is necessary for the creditors signing up to the agreement to agree that, during the Standstill Period, they will:

• Not to try to improve their positions relative to other creditors;
• Not insist on payment of amounts owing to them;
• Not initiate collection, security enforcement or liquidation proceedings; and
• Allow existing credit lines and facilities to be used.

THIRD PRINCIPLE

During the Standstill Period, the debtor should not take any action that would adversely affect the prospective returns to the relevant creditors on a collective or individual basis, as compared to their position at the commencement of the Standstill Period.

Guidance Notes:

If the creditors agree individually or collectively that they will not take any steps intended to gain an advantage over other creditors, it follows that the debtor must also agree not to do anything that would be detrimental to the interests of any creditor or class of creditors, or alter their respective priority positions from the commencement of the Standstill Period.

One important exception to this principle is the ability of the debtor to continue to make payments in what is commonly referred to as “the ordinary course of business”. If this exception were not allowed, the debtor would not be able to continue to trade while attempts are made to agree the terms of a workout. The types of issues that should be avoided here are for example transactions that are not for full value, the making of preferential payments, the granting of security for previously unsecured debts, or incurring new loans without prior creditor consent.

FOURTH PRINCIPLE

In an out-of-court restructuring, the interests of the relevant creditors are best served by coordinating their response to a debtor experiencing financial difficulties. In complex cases coordination of this nature may be facilitated by the formation of one or more representative coordination committees, by the appointment of professional advisers to advise and assist such committees and, where appropriate, the relevant creditors themselves participating in the process as a whole.

Guidance Notes:

All negotiations between the debtor and the relevant creditors must be conducted in the utmost good faith, in an atmosphere of honesty and frankness, and with the objective of finding a constructive solution to the debtor’s financial problems. If any of the parties lose confidence in the fact that their counterparts are negotiating in good faith, the negotiations to find a constructive solution are likely to fail which will in turn lead to the relevant creditors falling back on their legal remedies of enforcement and / or the commencement of insolvency proceedings.

Due the number of different creditors that could be involved in an out-of-court restructuring agreement, and their different priority positions in the event of a liquidation, it is often advisable for committees to be formed and for professional advisers to play their part in achieving consensus on the terms of the restructuring agreement. It may be appropriate for the costs of outside advisers, perhaps within specified limits, to be paid by the debtor.

Relevant creditors, or a representative co-ordination committee, may wish to consider appointing one person to lead negotiations with the debtor on their behalf (this could for example be the creditor with the greatest exposure, one with experience in managing restructuring negotiations, or an independent person).

In cases where the relevant creditors are experiencing difficulties in reaching consensus, it may be appropriate to consider whether or not some form of alternative dispute resolution, such as mediation, could be used to reach agreement. Any agreement reached on this basis can be made conditional on an overall restructuring plan being agreed which includes them.

FIFTH PRINCIPLE

During the Standstill Period, the debtor should provide all relevant information regarding its assets, liabilities, business and future prospects. All relevant creditors and/or their professional advisers should be given reasonable and timely access to this information in order to enable a proper evaluation to be made of its financial position, and for the formulation of any proposals that are to be made to the relevant creditors.

Guidance Notes:

The integrity of the restructuring process will largely depend on the quality of the information in the possession of the creditors being asked to compromise their debts. Although time will be of the essence in most restructuring cases, the Standstill Period must be sufficiently long in order for the necessary information regarding the debtor to be gathered, distributed and understood by all the parties concerned. The relevant creditors must also be provided with sufficient time to consider the details of the restructuring proposal.

In order for the process to have integrity, the debtor must be subject to strict obligations regarding disclosure. At the very least, the information provided must include full particulars of the debtor’s assets and liabilities, as well as the future business prospects of the debtor. In order to produce information relating to the future business prospects of the debtor, forecasts and projections that are more detailed than those it would normally prepare, will likely have to be prepared.

SIXTH PRINCIPLE

Proposals contained in a restructuring plan for resolving the financial difficulties of the debtor, and, in so far as this is practicable, arrangements between the relevant creditors relating to any Standstill Period, must comply with both the applicable law as well as reflect the relative positions of the relevant creditors at the commencement of the Standstill Period.

Guidance Notes:

In the absence of special circumstances, the relevant creditors will expect to be treated in the same way as creditors in a similar position to themselves, both during the negotiation process and in any proposed restructuring plan.

The provisions of the domestic or local law, including the insolvency law, should serve as a guide to the relative priority position of creditors. In more complex cases, relevant creditors will appreciate that it may be necessary for minor trade creditors to be paid in full in order to achieve greater consensus, and also to allow the debtor’s business to continue.

SEVENTH PRINCIPLE

Any information obtained for the purposes of the restructuring process dealing with the assets, liabilities and business of the debtor, as well as any proposals for resolving its financial difficulties, should be made available to all the relevant creditors and should, unless already in the public domain, be treated as confidential.

Guidance Notes:

Ideally, all relevant creditors should be provided with exactly the same information. This information should be as detailed as the circumstances of each case requires, but it must in any event be sufficiently detailed to permit creditors to form their own view of the merits of the restructuring proposal being put forward by the debtor.

If in any given case information is price-sensitive, or in some way the subject of legitimate confidentiality concerns, then confidentiality agreements are commonly required before the information is made available.

In complex cases the issue of debt trading may arise. This raises complex issues and special conditions may be needed where creditors intend to trade their debt.

EIGHTH PRINCIPLE

If additional funding is provided to the debtor during the Standstill Period, or as part of any restructuring proposal, the repayment of such additional funding should, in so far as this practical, be accorded priority status as compared to other indebtedness or claims of the relevant creditors that existed at the time of the commencement of the Standstill Period.

Guidance Notes:

The ability of the debtor to continue in business during any period of negotiation is central to the success of an out-of-court restructuring. While some debtors may not need to depend on third party financing to continue operating, there are many that do. In such an event, or where additional funding is required for other justifiable reasons during the restructuring process, the sources are typically the proceeds of the sale of non-core assets, new investment from shareholders, or additional lending from existing creditors (including banks).

Unless a certain degree of priority is accorded to any additional lending, it is highly unlikely that financing will be made available, and the workout may fail to survive long enough to permit a restructuring plan to be fully developed and considered by the relevant creditors.

The priority treatment accorded to additional financing made available in this way is often referred to as a “super priority” since the provider of such finance is entitled to be paid in priority to the claims of pre-existing creditors, even if the workout eventually fails and formal insolvency follows. It is usually only because of the existence of this priority that existing creditors are willing to provide this form of finance. It is seen as a relatively low risk manner of increasing the chances that their existing obligations will be satisfied, if only in part, in the long term.

There are many ways of achieving the desired priority for new lenders, including the provision of fresh security of some kind (for example a first ranking mortgage security over physical assets or receivables), and various forms of statutory priority. Care must be taken to ensure that any security will be valid in the event of the insolvency of the debtor.

21 January 2013                                                       Companies Division

                                                                               Port Louis

Jersey Finance announce plans for 2013

Jersey Finance has ambitious plans to develop new business for the Island’s finance industry which it will outline at a presentation this week to politicians and finance industry members.

Building on the platform in place through the opening of offices and representation in Abu Dhabi in the Gulf, Mumbai and Delhi in India and Hong Kong in the Far East and supported by the formation of new community groups for these regions and for Russia, Jersey Finance intends to further develop its activities in 2013. The agenda for the year ahead includes:

• Looking at ways in which Jersey can accelerate its ability to innovate with the possibility of creating a ‘J-Lab’ structure under the auspices of Jersey Finance to fast track ideas.
• Encouraging further business in complementary sectors including capital markets, insurance and international pensions.
• Considering and implementing recommendations of a report by a leading international consultancy which is pinpointing new initiatives for the industry.
• Highlighting the conclusions of the study commissioned into the impact of Jersey’s Finance Industry on the UK economy which it is believed will demonstrate the value of the Industry’s relationship to Britain.
• Extending Jersey’s global reach through first time visits to Saudi Arabia and further visits to other Gulf States, Hong Kong, China, India and Russia.

Alongside international visits, London will not be neglected as it remains a core location for Jersey’s finance industry. Two conferences, one on funds and one covering private wealth, are planned within the first half of the year, sponsorship of key City of London events are included in the programme and London activity will be reinforced by the work of Jersey Finance’s representative in London and the recently appointed global head of business development.

Jersey Finance has published a Review of its activity in 2012 to coincide with the presentation on Wednesday (January 23) which will be held at the Radisson Blu Hotel. The Review details the Industry’s performance during 2012 and the work of Jersey Finance.

Among the key developments were the arrival of five new businesses in the funds sector with a further four hedge fund firms in the pipeline; a record level of bank deposits from the Gulf and the granting of two new banking licences to State Street and Abu Dhabi Commercial Bank; the continuing progress in setting up a steady stream of new foundations and the arrival on the statute of enhancements to the highly regarded Jersey Trust Law and the increasing capital markets business which includes close to 100 registered companies listed on global stock exchanges, part of Jersey’s role in providing global companies with a gateway to London’s capital markets.

There is also confidence that Jersey will be able to satisfy the criteria necessary to comply with the EU’s Alternative Investment Fund Managers Directive (AIFMD) while ensuring that it will be business as usual in the meantime; overseas there have been hundreds of meetings with intermediaries, trade associations and regulators in Hong Kong and China, India and the Gulf as part of Jersey’s growing presence in these key markets and the opportunity to build on the double taxation agreements signed with Hong Kong and Qatar.

Locally, Jersey Finance set up a philanthropic foundation and paid out more than £50,000 to local charities as part of the celebrations of 50 years of the finance industry and developed its ongoing partnerships with Careers Jersey, Highlands College and Government departments to support young people considering a career in the finance industry.

Geoff Cook, chief executive officer, Jersey Finance, commented:

‘After four years in which the impact of the global financial crisis has inevitably taken its toll on Jersey’s finance industry, there were signs in 2012 of a corner being turned. Inward investment by a swathe of new arrivals on the Island was matched by encouraging figures of the amount of business done by the firms in our market leading sectors.’

‘The growth of the world’s emerging markets will outpace that of the developed countries for years to come. There is more to be done in winning a slice of that growth for Jersey, a challenge we continue to focus on, but I am particularly proud of what has been achieved in 2012 in expanding the reach of Jersey Finance’s activities through our representation in key markets such as China, India and the Gulf.’

Jersey Finance chairman, Jonathan White, highlighted the value of the co-operation with the authorities in Jersey. He added:

‘We benefit enormously from the constructive partnership that we have built with both the Government of Jersey and the Island’s financial regulator. These partnerships have unquestionably supported the growth in scope and reputation of the finance industry and I am most grateful for the contribution made by both.’

Speech of Ms Clairette Ah-Hen, FSC Chief Executive and guest speaker to the launch of “Sharia Share Dealing Service”

Speech of Ms Clairette Ah-Hen, FSC Chief Executive and guest speaker to the launch of “Sharia Share Dealing Service”

by UMEX Capital Markets Group and LCF

at ‘La Canelle- Domaine Les Pailles”on Tuesday 22nd January 2013

Members of UMEX and LCF,

Distinguished guests,

Ladies and Gentlemen,

Good morning,

I am honoured to be addressing you today in my capacity as Chief Executive of the Financial Services Commission.

The launch of the “Sharia Share Dealing Service” by LCF and UMEX Capital Market Group comes as an opportune moment for Mauritius. Many of you would know and agree that we are increasingly progressing in various areas as an International Financial Centre. Last month itself, I gave a speech during the “International Arbitration Workshop for Financial Professionals” at FSC House where I shared a message not too dissimilar to this one today.

Our democratic set up where stability and the rule of law prevail and our strategic geographical location, combined with the fact that we are bilingual, if not trilingual, make Mauritius a centre of reference relating to business and investment activitiesfor Africa, Asia (India and China) and Europe.

As you are already aware Mauritius has embarked on the “African Adventure”. Since last year, the authorities and operators have been working towards making Mauritius one of the major investment platforms / gateways into Africa.Our high ranking in terms of competitiveness, investment climate and governance makes us a trustworthy jurisdiction which inspires investors‟ confidence.

From Ghana in the west, to Ethiopia in the east and to Mozambique in the south, Africa‟s economies are growing at an even faster pace than those in almost any other region of the world. Although severe income disparities persist on the continent, a middle class in Africa is fast emerging and African countries are shifting away from being aid-dependant to increasing trade and investment ties with the world. The Economist reports that trade between Africa and the world has increased by 200 per cent. China's trade with Africa reached $166 billion in 2011, according to Chinese statistics. Over the last decade, economic linkages with the Middle East, in particular, has grown significantly.

With Africa‟s population set to double to 2 billion in 40 years, huge opportunities exist in Africa. A substantial number of the continent‟s citizens are Muslims and this large population needs to be served. So far for only the Northern part of the continent, which is the natural franchise of the Middle Eastern Islamic finance industry, has seen the enabling regulatory environment being created. Islamic finance industry is still in its infancy across Sub Saharan Africa.

Strong economic growth in the continent, coupled with human resource development and the promotion of private sector, is expected to boost economic activity in the region which, in turn, will increase demand for more inclusive financial services. The presence of a large unbanked Muslim population, as well as Muslims who would prefer a choice aligned to their faith, offers a tremendous potential for the growth of the Islamic banking and finance industry in the African markets.

As Africa becomes an increasingly attractive destination for investments that are Sharia compliant, the onus is on you, the Islamic finance industry leaders and financial institutions to tap into this tremendous potential. The road won‟t be an easy one and the industry must overcome certain challenges which include lack of Sharia compliant investment vehicles, fragile legal and regulatory frameworks and most importantly the lack of awareness by the majority of consumers.

Mauritius may well be the answer to providing Islamic Finance into Africa. The flexibility of our Legal and Regulatory framework allows for the development and expansion of Islamic financial services as well as being compatible with the key financial laws prevailing in the major developed countries (Europe, America...).

On our side, the FSC has been active in the licensing of new and key service providers which are adequately equipped to service a range of local and overseas clients. The FSC is in the process of signing a MOU with the European Securities Market Authority (ESMA) in connection with the AIFM Directive which will bring Mauritius at par in terms of recognition, with other signatory countries and will represent convenient access of our alternative investment funds and funds providers in the Euro zone area.

Yesterday, IOSCO published its final Report on Suitability Requirements for Distribution of Complex Financial Products which covers principles focusing on customer protections – namely, adoption and application of appropriate policies and procedures when distributing these products, requirements to act honestly, fairly and professionally, taking reasonable steps to manage or mitigate conflicts of interest and clearly disclosing the risks involved. This report also deals with information which is to be communicated in a fair, comprehensible and balanced manner as well as suitability protections for advisory services which is to be consistent with such customer's experience, knowledge, investment objectives, risk appetite and capacity for loss. The FSC will expect these same principles enunciated by IOSCO to be applicable to Islamic products and other investment products. The Compliance function and internal suitability policies and procedures by LCF and UMEX as well as supervision and enforcement by FSC in order to protect customers and enhance market integrity will remain of primary importance.

Furthermore, your choice to operate with UMEX and its strategic partner, LCF Securities Ltd for the African Region to provide global financial investment services that are sharia and ethical compliant, can only be an advantageous move.

Of course, this is not only because LCF Securities Ltd is licensed as an Investment Dealer (Full Service Dealer excluding Underwriting), pursuant to Section 29 of the Securities Act 2005 by the FSC since 23 April 2012, but also because of its main authorised activities, which are:

a. To act as an intermediary in the execution of securities transactions on behalf of other persons;

b. To give investment advice which is ancillary to the normal course of its business activities; and

c. To manage portfolio of clients.

You, through trading on the UMEX platform, will be able to have access to sharia compliant companies listed on the global exchange. This, in turn, may give you an exposure to trading in over 30 countries and in over 10,000 sharia compliant equities. UMEX, through this Mauritian alliance, may well fulfil its aim to bring top class service to Africa.

On another note, the platform offered by UMEX is an indication of the market development which evidences the increasing client needs for new financial products and investment avenues. The success of UMEX and LCF in this area will indeed increase the attractiveness of the Mauritiusus Securities Market and its position as an International Financial Centre in the Africa region by providing a „one-stop shop‟ for local and foreign investors wishing to invest in sharia compliant products.

I am encouraged to see that in terms of Islamic Finance (the products and electronic trading platforms UMEX and LCF are offering to this niche market) are on the same page as the FSC and share our vision for Africa.

To UMEX and LCF, I wish you a good launch and a successful trading life. To you, participants at this workshop today, I wish you enlightening and fruitful deliberation.

Thank you for your attention.

Clairette Ah-Hen

22 January 2013.

Former Mauritian Minister of Arts and Culture Tsang Man Kin Wins “Chinese Luminary” Award for his Contribution in the Promotion of Chinese Culture

On the 17th January 2013, during a ceremony organised by the Chinese Ministry of Culture, Information Department of the State Council of China, Office of Overseas Chinese, State Administration of Radio, Film and Television (SARTF) of China and the China Central Television (CCTV) which was broadcasted on Chinese national television and globally via satellite, Mr. Joseph Tsang Man Kin received the prestigious “Chinese Luminary” award.

The “Chinese Luminary” award rewards a person who has made a significant contribution in the promotion of Chinese culture.  He joins the likes of Nobel laureate for literature Mo Yan, world-famous star pianist Lang Lang and Chen style Taiji master Chen Xiaowang as ambassadors of Chinese culture.  Mr. Tsang Man Kin was recommended by his former colleague and long-time friend, Mr. Marcel Noe.

Video clip: http://news.cntv.cn/2013/01/17/VIDE1358427786669747.shtml