Apple & diversity

Yes I have thoughts about Apple firing Antonio Garcia-Martinez. They are nuanced but I’ll break them down so you can have a quick brief and then you can go ahead and read why I think these thoughts.

Thought 1: Apple firing someone after an outcry is not new. Its diversity chief “left” the company after an outcry over some comments about diversity.

Thought 2: I read the quoted text from Garcia-Martinez book (without reading the book itself) and it made me cringe.

Thought 3: This is a knee-jerk reaction by Apple and has not been well thought out. Apple could have done better for both diversity and for Garcia-Martinez.

Okay now here’s the full post.

Social media seems to have brought on a phenomenon where corporation react quickly to an online outcry without thinking through long term implications; and also without really digesting the message from the social media outcry in the first place. (I have a whole series of posts on this if you want to have a look.)

In 2017, Apple’s then VP of Diversity and Inclusion, Denise Young Smith, made some comments on diversity which became controversial. The comment was as follows:

There can be 12 white, blue-eyed, blond men in a room and they’re going to be diverse too because they’re going to bring a different life experience and life perspective to the conversation

She not only apologised for this later but also had to leave Apple soon after.

As it happens, she was not wrong. She was alerting people to the diversity that comes from life experience, irrespective of how one looks on the outside. Note that she used the term ‘too’ in her comment meaning that it is one type of diversity. One of many other types out there. I myself have written about the importance of viewpoint diversity for corporate governance. Rather than Apple getting behind her and helping clarify this, they fired Smith who was herself a black woman. So Apparently apple was more concerned about calming public outrage than getting behind a diverse executive. It was a poor move.

Fast forward to 2021, they hired Garcia-Martinez as an advertising technology engineer and fired him a month later. Their statement is as follows:

At Apple, we have always strived to create an inclusive, welcoming workplace where everyone is respected and accepted. Behavior that demeans or discriminates against people for who they are has no place here.

According to Garcia-Marinez there was no such discriminatory behaviour. Instead, it was the result of an outcry over a passage in his non-fiction book.

Most women in the Bay Area are soft and weak, cosseted and naive despite their claims of worldliness, and generally full of shit. They have their self-regarding entitlement feminism, and ceaselessly vaunt their independence, but the reality is, come the epidemic plague or foreign invasion, they’d become precisely the sort of useless baggage you’d trade for a box of shotgun shells or a jerry can of diesel.

Apparently, 2000 Apple employees signed an internal petition criticizing his hiring based on this passage. For his part, Garcia-Martinez has been contrite. The WSJ has reported that Garcia-Marinez said:

That book is not me now, it wasn’t even me then…To be honest, there was a literary persona. I was trying to create a style in my naive, first-time book writer sort of way, which in retrospect, I think was a mistake and I regret much of it.”

So not only was there no workplace misconduct as was implied in Apple’s statement, he has also expressed contrition for that passage. This could have been a teachable moment and Apple could have used it as a chance to have internal discussions about why that statement was problematic and how such generalisations can be harmful. It could have also put out a statement to that effect and ridden out the social media storm, choosing instead, to address the issues of diversity and equality in ways that would bring real and long-term change.

This knee-jerk reaction has resulted in an action that does not do right by Garci-Martinez. Neither does it help create long-term change in the company. What is more, there might be more internal resentment against diversity issues because of this.

I also meant to say something about Damore (which is different story in many ways but also similar in some ways) but this has already turned into a long post so if you want my thoughts on Google firing Damore, you can catch them here.

Virtuous volte-face

People change their mind all the time. When a CEO does it, we take note. We might even point out inconsistencies in what they say and do. But this post is not about such an inconsistency. This post is about Musk doing a volte-face about Tesla accepting bitcoin. And it is a virtuous volte-face.

After declaring that Tesla would accept bitcoin, its CEO, Musk, recently tweeted that ‘Tesla had suspended vehicle purchases using bitcoin’. His tweet went on to explain:

We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.

Cryptocurrency is a good idea on many levels and we believe it has a promising future but this cannot come at great cost to the environment.

There is truth to the climate change concerns around bitcoin mining. The main counter-narrative is that bitcoin miners use renewable energy. Here is a balanced article which discusses findings of a study on the issue:

Köhler says the findings don’t mean we can stop worrying about bitcoin – especially given electricity use per new bitcoin is growing – but we should put it in perspective. “On the one hand we have these alarmist voices saying we won’t hit the Paris agreement because of bitcoin only. But on the other hand there are a lot of voices from the bitcoin community saying that most of the mining is done with green energy and that it’s not high impact,” she says.

Getting a better handle on bitcoin’s carbon footprint will remain tricky until we have more accurate data on where mining takes place – information which Köhler and Pizzol say is scarce today.

Despite the uncertainty, it is safe to say that bitcoin mining comes with climate change concerns even its impact is not as much as some other activities.

But what explains the change of heart? Some analysts have suggested that the move is to assuage investor concerns on sustainability especially since Tesla is a clean energy focused company. Others mention perfectly valid business reasons. These would be plausible. But generally plausible explanations usually don’t apply to mavericks. For what its worth, I think that this is a genuine volte-face. This is a CEO (oops Technoking) who does not usually pander to public outrage. I think this is worth something because there usually are different views on issues and it is good to be able to take one’s time in evaluating the science (or relevant evidence if we are talking about other issues) and then change one’s mind if necessary.

Ideas on corporate purpose from Māori business forms

I have a short article titled Indigenous corporations: Lessons from Māori business forms out in the Alternative Law journal. It should also be of interest if you are thinking about topics like corporate purpose and social enterprises.

Here is a small teaser:

There has been much criticism of the existing paradigm of corporate law which is underpinned by the shareholder primacy theory according to which shareholder interests must be prioritised. The alternative theory, stakeholderism, has received a lot of interest over time. However, stakeholderism runs into the problem of not setting out a way to balance the interests of various stakeholders. In other words, when the interests of different classes of stakeholders (for instance employees and that of the community) are contrary to one another, it is not clear which of their interests should be prioritised. Proponents of the two theories tend to find common ground in the long-term shareholder interests view according to which interests of various stakeholders are taken into consideration because they will benefit the company in the long run. At first glance, Māori corporate governance might be viewed in this long-term shareholder lens because it seems to find a middle ground between the two competing theories. However, a closer examination of Māori business entities reveals that the complex structuring holds the key to the balancing act.

The article grew out of my class preparation for my company law and corporate governance classes when I used to teach at a New Zealand law school.

FREE MARKET FEMINISM

A REVIEW OF ACCIDENTAL FEMINISM: GENDER PARITY AND SELECTIVE MOBILITY AMONG INDIA’S PROFESSIONAL ELITE

This review first appeared in The Law and Other Things as part of a round-table discussion. The entire round-table can be accessed here.

Professor Swethaa Ballakrishnen’s Accidental Feminism: Gender Parity and Selective Mobility among India’s Professional Elite deftly analyses career pathways of female lawyers (some of whom are Partners) in India’s “elite” (Big Law) law firms. The interviews of these lawyers reveal the pathways to success for women in these firms. It is a refreshingly thoughtful book that goes beyond simply focusing on the number of women partners in these elite law firms. By comparing this analysis with that of female journeys in the traditional litigation firms in India and also with the Indian offices of global consulting firms, Ballakrishnen is able to tease out factors that might have contributed to the law firms’ feminist outcomes.

Gender does not matter until it does

Gender “is not an issue” for many of the interviewees (women in elite law firms) in Ballakrishnen’s book and having worked briefly in one such firm, I would have mostly agreed with this view at that time. The idea of the perfect worker, as Ballakrishnen writes, is not gendered in these firms. Additionally, the presence of female Partners sent the message that those top roles are available for both men and women. Male interviewees’ responses in these workplaces suggest, as Ballakrishnen points out, the role of the new law schools in normalising women as high performers. These law schools attracted a majority of the female students on the strength of the international market available to them, via the new law firms. By contrast, the litigation market where family connections still matter, attracted very few women.

Ballakrishnen explains that the new law firms offered egalitarian recruitment and promotion practices for two reasons. The first was the lack of existing family networks in the new market and the second was the need to fit into the global standard. Why did they need to fit into the global standard? While India’s liberalisation efforts in the nineties brought international investments and hence clients needing legal advice, the legal constraints on the entry of foreign lawyers into the Indian legal market meant that domestic law firms had to service global clients. Ballakrishnen reveals an interesting contrast to consulting where global firms were allowed to set up offices in India. The India offices of these global firms might have had the luxury of throwing up their hands in the face of local hurdles to gender equality; whereas the domestic law firms in India did not have that luxury. As a result, Ballakrishnen notes that they not only mimicked “modern, meritocratic institutional scripts” that they thought was followed in western law firms, they actually ended up outperforming those that they sought to mimic. The mimicking is also attributed to these new firms needing to distance themselves from the pre-existing litigation firms that were supporting restrictions for the entry of foreign lawyers into India. In any case, the mimicking and urge to be “global” seems to have resulted in a great value placed on meritocracy. Incidentally this seems to have resulted in gender parity at the Partnership level in Indian law firms.

Ballakrishnen’s use of the consulting firms as a comparative metric with which to understand gender trajectories in law firms is very interesting. The fact that the focus on meritocracy (without special gender-oriented measures) resulted in improved gender parity in law firms sits in stark contrast to consulting firms which seemed to have some gender-focused measures but still did not manage to retain women in the upper levels of the workforce. The reason behind the law firms’ success in retaining women seems to be threefold. First, by the time women in these firms have children, they are already at top positions with negotiating power and are able to negotiate their workplans to accommodate childcare duties. This was possible because of the new law schools that offered a five-year undergraduate degree which meant that lawyers from these schools started their careers early. The fact that the law firms were new also meant that they were eager to bulk up their partnerships thus fast-tracking career progression. Second, clients of these firms are mostly international and do not have gendered expectations in the way that domestic clients might. Third, the women in these law firms are able to access childcare from women in their extended families who are not in the workforce. The last of these reasons can clearly apply to women in other workspaces as well. Despite the relative success, Ballakrishnen points out that there was a high female attrition rate and one amongst the many reasons for women leaving was the inability to balance work and family responsibilities.

The particular issue of balancing childcare with work comes up at a later point in women’s careers which is the possible explanation for many lawyers (including myself while I was at one of these firms) feeling that gender was “not an issue”. For those who do manage to negotiate workplans around child care, Ballakrishnen concludes on the basis of her interview responses that there was cheap labour available in India for housework. In this context, I have to add that although the existence of cheap labour is a benefit, Covid-19 saw many Indians learning to use machines for many household chores that had already been automated in western countries. Lawyers in the elite firms discussed are well able to afford these amenities. An astute conclusion in the book is that most of these lawyers were able to call upon the previous generation of women in the family to help with childcare responsibilities. However, some women did not have this advantage either because the previous generation in their family was working or not located in the same city. I myself have witnessed this play out in my family when my mother, a busy career woman herself did not conform to the usual role of taking over child care responsibilities of her working daughter (my sister). As the issue becomes more common, the market for child care services in India is likely to improve manifold.

A significant point that emerges from the book is that the women lawyers who had managed to strike the right balance seemed to have partners that contributed to house work and childcare. This is worth stressing because although support from workplace policies can go a long way, support at home is important and not something that is commonplace in India. As the interviews of those in consulting firms show, women were likely to be penalised in terms of career progression for opting for flexible work options which were available in those firms. As more men begin to shoulder child care responsibilities and avail of flexible work options, it will start to seem like less of a women’s issue. It will be interesting to see if the post-Covid world has a more benign response to flexible work situations since the Covid era has seen both men and women working from home.

Class/ caste

The book’s final chapter suggests that caste/ class is a variable in the success of these women in elite firms. This seems speculative since none of the interviewees mention caste or class privileges or disadvantages and it is not clear whether data in this regard was collected.

Ballakrishnen compares two lawyers at the same firm saying that one of them was able to negotiate a work flexibility to accommodate childcare while the other had more difficulty with these negotiations because she was an “outsider”. The implication seems to be that she is an outsider in terms of either caste or class but this is not clear. While it is true that a pre-determined policy that all women within the firm may access when they need to would be simpler than each woman needing to negotiate her options, it is not clear that caste or class is a barrier here.

Implications (hopes) for the future

Ballakrishnen worries about what the situation would be after the “impending liberalisation” of the legal market. I am less hopeful about the liberalisation being impending than Ballakrishnen is but if it does happen, I am not as worried as she seems to be. She worries that foreign firms may merge with existing domestic firms and as a result, the partnership track would inevitably become longer than it currently is, thus taking away one of the factors that allowed women to negotiate their work plans to accommodate childcare. I would expect the market liberalisation to result in a wide variety of options for Indian lawyers – domestic firms that have merged with foreign firms, domestic firms that do not merge, and in time, foreign firms that set up shop in India. These range of options in a market will give lawyers (men and women) more choice and firms would have to respond by providing more than just attractive salaries to retain talent.

Accidents and intentions

The road to hell is paved with good intentions; but perhaps the road to something better than hell in paved with happy accidents? Since some of these accidents detailed in Accidental Feminism were brought about by India liberalising its economy in the 1990s, this might also be a story of free market feminism.

Thus, while I find the title of the book delicious, I would have to say that what Ballakrishnen calls unintended or accidental feminism, I see as free market feminism. I see the merit in calling it accidental considering the range of variables that needed to come together to make the “gender is not an issue” story come alive in Indian (elite) law firms. However, many of these variables were market responses to the liberalisation efforts (coupled with foreign law firms being barred from the country) in the nineties. If women lawyers in these firms needed childcare help, the existing family networks and a type of labour force came to the rescue. The availability of women from the previous generation meant that the female lawyers in question could depend on them rather than on domestic help. When this is not available in future, professionals in need are bound to get over their hesitation about employing people of a different caste/ class to perform childcare duties. In any case, I do not have the same hesitation as Ballakrishnen about allowing actors to use the term feminism even if they do not subscribe to the mainstream version of feminism, whatever that is. In fact, allowing the firms to take on that title may incentivise them to live up to it by pursuing more intentional policies. The only worry is that the intentional policies might inadvertently undo the gains achieved so far.

In this book’s account, the positive outcomes were unintentional. However, there may be well-intended actions (the introduction of gender quotas on company boards for instance) with negative consequences. It is important to be alive to the costs and benefits – of law, regulation, or even voluntary corporate action – to ensure that there is a net gain. On the other hand, when we see a net gain from actions, even if those are unintentional, we should not hesitate to take advantage of it. The focus on merit in these firms has worked, albeit with some issues. This book helps us identify the issues and consider improvements to the current model. As Ballakrishnen says, the time for this is now. I would just caution that any intentional actions should be well-considered.

(Kind of) new industry, old lesson

There has been a bunch of amazing space news in the last few weeks including the Mars pictures being fed to us by Ingenuity. More to the point of this post is the news that NASA chose SpaceX as the company that will build a Moon lander to take humans to the Moon (again) as part of the Aremis Program. SpaceX was chosen because its ‘bid was the lowest of the three competitors “by a wide margin”‘. Going beyond the issue of private companies competing to provide space activity at lower cost, the Moon lander is also an interesting move for Nasa in terms of taking a hands-off approach i.e. allowing private companies free rein to figure out how to do the job. Another news item in the last few days has been about SpaceX launching astronauts to the International Space Station on a reusable rocket and capsule. Such reusability is a key factor that is driving costs down for SpaceX and other companies like the European company Arianespace (which used to be the leading commercial launch provider) are struggling to compete. What can Europe do to be more competitive? Josef Aschbacher, the European Space Agency’s new chief wants to see more competition and slash red tape to enable new technologies to develop faster. I hope space agencies (and other regulators) across the world take the lesson as well.

Add “disclosure requirements” and stir?

Combating modern slavery and encouraging CSR. These are two different issues that require very different regulatory engagement although they seem to start out (in some countries) with a common point – disclosure laws. I have two articles, one on CSR (forthcoming) and another on modern slavery (fresh off the press – online anyway) that discuss disclosure requirements but my argument is very different for both issues. On the CSR requirement in India I call for more flexibility. For modern slavery on the other hand I call for targeted regulatory engagement. Short extracts from each of the two articles follow:

On the rigid CSR law in India which requires companies to spend a certain percentage of profits on designated activities:

…it would have been similarly useful to go further and help those companies that are able to contribute to the country’s efforts to deal with the crisis in innovative ways. A simple way to do this would be to introduce a new catch-all category for CSR spending which allows companies to assign a cost to a socially oriented activity, for example, using company property to help the country during a crisis. This amendment could have been introduced with temporary effect like the insolvency reforms, for a period of say, 12 months. The government could then assess, based on the quality of CSR activities, if such a catch-all provision should be introduced more permanently.

On recommendations for effective modern slavery law:

A government apparatus in the form of a regulatory agency should be set up to engage with the companies (or consultants acting on behalf of the companies) about the content of their disclosures and actions taken to prevent human rights violations. Further, the body should begin by publishing lists of companies that had complied with the law and had made efforts to conduct due diligence and set up mechanisms to address any issues. … Ultimately the aim should be to co-opt and encourage companies to work with government agencies, to address issues of modern slavery.

The availability of … alternative channels of reporting will incentivise companies to address complaints internally and work proactively with [the regulator] to comply with the modern slavery obligations.

I have decided to post about these two articles together not just because they are ready at the same time, but also because disclosure requirements have become ubiquitous. Nuanced considerations of the usefulness of such of a requirement, and how it can be made effective in each context are necessary.

P.S. A short post briefing the CSR article is here.

Insolvency in air and space and the Cape Town Convention

The High Court of Australia is set to decide on an issue of interpretation of a clause applicable to secured transactions involving international transactions re aircraft. This will also have implications for transactions in the space sector.

The Cape Town Convention (the Convention on International Interests in Mobile Equipment) is relevant for secured transactions re Aircraft, Spacecraft etc. Since airline insolvencies are unfortunately a reality in the aftermath of Covid, the Cape Town Convention has become more relevant than in the past. With corporate activity in space heating up, it is likely to become relevant in the space sector as well. The experience of the use of the Cape Town Convention in the airline industry will be instructive.

Aircraft protocol

The Cape Town Convention and the Protocol on Matters Specific to Aircraft Equipment (Aircraft Protocol) has been in the news thanks to the Virgin Australia insolvency. The Federal Court of Australia (FCA) in Wells Fargo Trust Company, National Association (trustee) v VB Leaseco Pty Ltd (administrators appointed) interpreted Article XI of the Protocol and the appeal is currently being heard in the High Court of Australia (HCA).

The Convention and Protocol establish an international legal system for security interests in aircraft equipment. In a forthcoming book chapter (Airline Insolvencies in India) Hitoishi Sarkar and I discussed Article 3(1) of the Convention which provides that the Convention is applicable if the debtor is situated in a state that is party to the Convention.

We explained Article XI of the Protocol as follows (references omitted; emphasis added):

The most central insolvency provision pertaining to aircraft is provided in Article XI of the Aircraft Protocol which provides contracting States with two alternative provisions. It then provides that contracting States may choose either alternative or choose to adopt neither of the alternatives. If a contracting State elects one of the alternative versions of article XI, then that version will apply when the contracting State is a debtor’s ‘‘primary insolvency jurisdiction.”

Under Alternative A to Article XI of the Aircraft Protocol, the debtor’s ‘‘insolvency administrator’’ or the debtor must give possession of the relevant aircraft object to the creditor holding an international interest in the object before the expiration of a stipulated waiting period. The alternative permits a Contracting State, in its declaration with respect to that article, to specify the applicable waiting period’ that will apply when the Contracting State is a debtor’s primary insolvency jurisdiction.

Under Alternative B, the insolvency administrator or debtor, on a creditor’s request, is merely required to give the creditor notice whether the administrator or debtor “will cure defaults and perform future obligations or permit the creditor to take possession of the aircraft object. This alternative does not provide a creditor with any right to obtain possession of an aircraft object in insolvency proceedings.

Since Australia has opted for Alternative A, “give possession” was being interpreted by the FCA. In the court’s view “give possession” does not include redelivery and so it is up to the creditor to “come and get it“. (There is an excellent article on this by Professor David Brown “Give” and “Take”: Virgin Australia, the Cape Town Convention and Aircraft Protocol (2021) 21(1&2) INSLB 21 where he endorses this interpretation and also discusses further about the “commercial sense” of the court’s interpretation.) This is currently being heard in the High Court of Australia (as Michael Murray reports over at his blog) so we will have to watch how this goes down.

Space protocol

The Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Space Assets (Space Protocol) which is not yet in force has a similarly worded provision.

Alternative A under Article XXI also states as follows (emphasis added):

Upon the occurrence of an insolvency-related event, the insolvency administrator or the debtor, as applicable, shall, subject to paragraph 8 and to Article XXVI(2) of this Protocol, give possession of or control over the space asset to the creditor no later than the earlier of:

(a) the end of the waiting period; and

(b) the date on which the creditor would be entitled to possession of or control over the space asset if this Article did not apply.

Thus, the interpretation of the HCA is likely to be relevant to insolvencies in the space sector as well.

Climate change disclosures – NZ edition

New Zealand has gone and done it. It has introduced the Financial Sector (Climate-related Disclosure and Other Matters) Amendment Bill to Parliament. Once passed, it will require certain financial sector entities to make audited climate related disclosures from 2023. The entities in question are those that are considered to have a higher level of public accountability per 461K of the Financial Markets Conduct Act 2013. They include listed issuers, large banks, large non-bank deposit takers, and large insurers, and large managers in respect of managed investment schemes. The Task Force on Climate-related Financial Disclosures will provide the framework for disclosures and External Reporting Board will prescribe standards.

The climate disclosures should be audited by qualified assurance engagement practitioners. Climate related disclosure assurance bodies should be approved by the Financial Markets Authority. Over and above the audit requirements, any entity that is subject to the climate reporting will, along with each of its directors, will be liable for conviction under the FMCA (s 461ZC) if they knowingly fail to comply with the climate disclosure requirements.

I had previously discussed climate related disclosures as a regulatory option in the context of the SEC in the US considering corporate disclosure requirements regarding climate change impacts. The New Zealand edition of climate related disclosure requirements will however rely on assurance practitioners with technical expertise to audit the disclosures.

Pre-packaged insolvency resolution for MSMEs comes to India

The IBC has had an exciting new amendment via ordinance a few days back (4 April, 2021)! It finally gives us (MSMEs) a pre-pack system of restructuring. Put another way, it works as a debtor in possession (DIP) model of insolvency process. This is a lifeline for MSMEs and others who are eligible because normal IBC filings had been suspended (bad move!) as a post-pandemic measure. (The second recital is trying to spin the suspension as a measure to “mitigate distress” but well, the move likely caused some distress too.)

In any case, the IBC process was not a DIP model so the amendment has rightly caused excitement in the industry. As one news article puts it, ‘corporate debtors remaining in possession is a global best practice in such schemes’. Another great feature is that the debtor company gets to submit a resolution plan first.

So how does it work?

An MSME that has defaulted on its debts can apply to initiate a pre-packaged insolvency resolution process. The riders are that it should not have already undergone a pre-pack process or a full insolvency resolution process in the preceding three years; it is not undergoing a insolvency resolution process or be subject to an order of liquidation; and it should be eligible to submit a plan under s 29A. Once all these boxes are ticked, a majority the board of directors need to declare (in a prescribed form):

(i) the company’s intention to file within a certain period of time (not more than 90 days);

(ii) that the prepack process is not being initiated to defraud any person;

(iii) the name of the insolvency professional (IP) who is proposed and approved by the financial creditors who are not related parties; and

(iv) A members special resolution should approve the decision to initiate the pre-pack.

Finally, the company must get the approval of financial creditors (excluding related parties) representing not less than 66% in value of the financial debt due to them. By the time financial creditors get to the stage of approving the initiation of the pre-pack, they should have been provided with the company’s resolution plan (known as the base resolution plan) and other details. Hence the term ‘pre-packaged’ process.

When the pre-pack application is filed, the NCLT has 14 days to admit or reject (if the application is not complete) it. The moratorium kicks in from the filing date and a public announcement of the prepack process is made by the NCLT. The pre-pack resolution process should be completed within 120 days. The ‘process’ simply means the approval of the resolution plan (which can be different from the base resolution plan) by creditors and its submission by the IP to the NCLT. To that end, the IP convenes creditors’ meetings, the first of which should be within 7 days of initiating the pre-pack. If they cannot approve a resolution plan, the IP submits an application to terminate the prepack process. If a plan is approved by the creditors, then the NCLT approves or rejects the plan on the same basis as under the insolvency resolution process.

The IP, along with the usual functions during the normal insolvency resolution process seems to have one additional function during the pre-pack process – to monitor management of the affairs of the corporate debtor. The board, while remaining in control of the company, is required to ‘make every endeavour to protect and preserve the value of
the property of the corporate debtor, and manage its operations as a going concern’ (s 54H(b)). There is also an option for the creditors to apply to change this default DIP model and put the IP in control by a vote of at least 66% of the voting shares (s54J(1)). The NCLT will approve such a request if it finds gross mismanagement, or fraud or other issues.

Thoughts

Hopefully the prepack will play out as well in practice as it looks in theory. There is room for appealing the approval of a resolution plan – ideally there will not be too many of those. If it does work well, we can expect this to be rolled out for larger companies too. In fact, NCLTs should suggest companies explore the prepack option before filing for the corporate insolvency resolution process considering the huge case load the NCLTs already have.

Interesting post-Nevsun article by Ahmad

I had blogged about the Canadian Supreme Court decision in Nevsun in my Fantastic New Torts and Where to Find Them series and here. Hassan Ahmad has posted his forthcoming article titled Transnational Torts against Private Corporations: A Functional Theory for the Application of Customary International Law Post-Nevsun on SSRN where he makes an interesting observation about the Nevsun decision:

I am supportive of a move to encapsulate private MNCs within CIL’s [customary international law] ambit. MNCs’ size and wealth has precipitated inordinate amounts of power and authority over the persons and places with whom they interact at the international level. However, there is a troublesome dissonance in Nevsun if CIL is to retain its symbolic nature of accounting for public and exceedingly heinous conduct and yet be available on every occasion a corporate actor invests and subsequently commits harm outside its home state.

His article then goes on to propose, as the title suggests, ‘a functional approach for corporate customary international law tort claims’.

A paragraph in the article’s conclusion sums it up nicely:

For activists and academics alike, the Supreme Court’s decision in Nevsun was a watershed moment that may eventually serve as a starting point to free international law from the confines of ‘statism.’ It may also signal a turning point in a cognizable governance gap or missing forum for corporate human rights violations in weak governance zones. But the majority’s decision left too much to the imagination as it did not adequately distinguish CIL from existing tortious causes of action. A functional approach would respect CIL’s distinctive status. It would limit a tort claim to instances where a corporate actor that conducts business abroad behaves like a state vis-à-vis its interaction with host state populations.

Ahmad’s analysis of the pre-Nevsun understanding (including under the U.S. Alien Tort Statute) and the proposed way forward offers a sensible analysis in the wake of the Nevsun decision. I too have criticized the Nevsun decision in previous blog posts and a forthcoming article (watch this space!) although I propose a different way forward.