The Corporate Rehabilitation Ordinance (CRO) is set to be promulgated this month, by-passing parliament and any serious debate. Once promulgated, it will let off the hook thousands of high-profile defaulters of bank loans, utility bills and tax dues. Fallback plans to steamroll the proposed law through parliament on the backs of the hordes of elected defaulters are also in place. The astonishing piece of legislation sponsored by an influential coterie within the government, led by a minister of state closely related to a well-known bank defaulter facing legal action, will allow any company to obtain an immediate stay of all proceedings against it and its sponsors-guarantors merely filing a petition in court stating a desire to have its liabilities 'restructured. Central to the framework being put together to facilitate write-offs will be a so-called technical advisory committee to be appointed by the federal government for the purpose of approving write-offs. The search for appropriate henchmen for the proposed committee is on. Applicants may join the queue. Having obtained an automatic stay order against all recovery proceedings the defaulting company is to make a declaration of claims that are admitted by it. This will not preclude the defaulter from disputing a claim made against it by any person, including the tax and utility authorities as well as bank creditors up to the Supreme Court. This is to happen while the normal proceedings before the tax and utility adjudication authorities as well as the banking courts remain frozen for years. As regards the claims admitted by the defaulter mandatory write-offs may be demanded through a restructuring plan. The high courts will have the power to allow write-offs without needing the consent of the creditors concerned. A peculiar feature of the proposed law is the intended involvement of the judiciary directly in the write-off of bank loans and other dues. The desired restructuring plan is to be proposed by the defaulting company itself and may involve forcing all those having claims against the company to write-off amounts not considered payable on the basis of the projected cash flows of the company. Projection of cash flows is to be made on the basis of data to be provided by the defaulter itself. The high courts are to be involved in the write-offs once a technical advisory committee set up by the Federal government has approved the plan. The intent to involve the superior judiciary directly in the sanctioning of write-offs points to a sinister design to mire the judiciary in controversy. In the event of the write-off plan desired by the defaulter being altered by the technical advisory committee the defaulter may challenge the alteration up to the Supreme Court, again taking years, while retaining unhindered control over the defaulting business. Upon the ultimate approval of a plan all personal guarantees will stand released as a matter of course. The silence of the FBR with respect to the tax recovery implications of the proposed CR0 is baffling, to say the least. Under what pressures the FBR has acquiesced in accepting a write-off of taxes payable by a defaulter is surely a matter that will spawn many a story in the future. Or is it that the FBR has been kept in the dark about the reach of the CR0? The same applies to the power and the gas utilities. The CR0 prohibits them from disconnecting supply merely on account of non-payment as long as the restructuring plan remains under review. Yet, nothing at all has been heard from any of the utilities. Conservative estimates of the length of time required for the process of claim determination and plan approval range from five to ten years. Proceedings under Chapter 11 of the US Commercial Code, of which the proposed CR0 is a grotesque copy, on average take four years from start till end. This happens despite the fact that Chapter 11 proceedings take place before hundreds of federal courts spread throughout the United States and in spite of the decades of experience that these courts have accumulated in dealing with restructuring plans. Barring a handful of countries, the US Chapter 11 has been regarded an unsuitable model by almost all countries that have considered corporate rescue and restructuring laws in the past decade or so. The most intensive examination in recent times of the sponsored by the Australian parliament and the main corporate law think-tank in Australia. Both reports declared Chapter 11 a debtor-led, court-centred procedure, unsuitable for Australia given the lack of capacity and commercial sophistication of the Australian courts. A similar sentiment motivated the rescue model adopted in the United Kingdom through the Enterprise Act of 2002. The academic literature, much of it sponsored by the World Bank, is also overwhelmingly against the adoption of a rescue law based on the US Chapter 11 by countries with less than extremely efficient judicial processes and courts with a strong commercial orientation. The timing of the CR0 is peculiar, coming as it does hardly four years after the now infamous Circular 29 issued by the State Bank that had given the phrase 'moral hazard a new meaning by providing cover for bank loan write-offs of tens of billions of rupees. This time around responsibility for distributing manna has been placed on the already stretched capacities of the Securities and Exchange Commission of Pakistan (SECP), which is to oversee the implementation of the CR0. This is peculiar too. There is hardly an example of a regulator anywhere in the world that regulates corporate governance, the securities market, investment banks and mutual funds as well as insurance companies all under one roof. While the SECPs record in none of the areas under its regulatory oversight has been anything to boast about it is envisaged by the CRO as assuming the role of the corporate insolvency regulator as well. Why? One wonders. In view of the unholy zeal that appears to have driven the CRO thus far it is clear that no serious attention has been paid to choosing the appropriate law after taking into account the regulatory and judicial infrastructure as well as the corporate and audit culture available in Pakistan. The fact that most companies of any significant size in the US have managements that are distinct from the board as well as the shareholders, acts as an internal restraint against recourse to Chapter 11. This is a decision that is inevitably taken after much pain within the company. Very often the management proposing a Chapter 11 rescue loses its jobs in the wake of the rescue. The shareholders also place the board under pressure. None of these internal restraints inhibiting a reckless recourse to Chapter 11 will apply to most Pakistani companies in which the same family controls the shareholding, the board and the management. Resort to a Chapter 11 based procedure will become an almost painless gamble. It is this prospect that is presently creating ripples of pleasure through the brotherhood of defaulters all across Pakistan.