ISLAMABAD: Corporate Restructuring Companies (Amendment) Ordinance, 2020 has directed the federal government to constitute a Corporate Restructuring Board (CRB) having professionals for recovery of non-performing assets or restructuring and rehabilitation of companies in financial distress.
Explaining the new amendments to the Corporate Restructuring Companies Act, Asif Kasbati a leading Karachi-based tax expert and ICAP Fiscal Law Committee Member told Business Recorder that the Corporate Restructuring Companies Act (CRC), 2016 has been recently amended through the CRC (Amendment) Ordinance, 2020.
A Corporate Restructuring Board (CRB) shall be constituted by the Federal Government consisting of not more than 5 Members who shall be Professionals (having experience and sound knowledge with company law or recovery of non-performing assets or restructuring and rehabilitation of companies in financial distress); and shall be subject to conditions as defined in the rules, such as, their functions, remuneration, eligibility & qualifications, budgetary allocation and any other matter that may be considered necessary to expedite the matters, he said.
Under the new law, a Corporate Restructuring Company, holding at least two-third in value of the principal amount payable to the secured financial institutions, may present a scheme to the Corporate Restructuring Board which may sanction such a scheme.
The new section empowers the CRC, where it holds at least 2/3 of the Principal amount payable to secured financial institution, to propose and implement a Scheme, if it is approved by the CRB.
To determine the principal amount required by the CRC to propose a Scheme, it shall use the publicly available information and shall send a notice to secured financial institutions to swear the amount owed to them by the obligor and also the nature and extent of security related and issue an affidavit in this regard. If the affidavit provided is false or incorrect, it shall invite penalties not exceeding Rs50 million.
The CRB shall invite objections to the proposed scheme and where no objection is presented, the scheme may be sanctioned. Once the scheme is sanctioned, it shall override any other Law applicable, any Agreement or Contract applicable to the Obligor and any Agreement with the financial institution and other creditors of the concerned Obligor. Any person aggrieved by the Scheme shall file an appeal with the Court, within 30 days of its date of sanction.
Once the scheme is sanctioned, all legal suits against the Obligor shall stand abated, except for the
Legal suits provided for in the Scheme, which shall continue.
In order to empower the CRC, to enable it to propose a scheme in line with section 8A to fulfill the objectives of this Act, amendment has been incorporated in Section 2(1)(iv)(a), tax lawyer explained.
Under the revised law, a new section has been inserted to grant powers to CRC to constitute one or more Trusts in order to acquire non-performing assets from financial institutions, with certain conditions such as the agreement shall be entered into by the CRC on behalf of the Trust; and that Trust shall be managed by the CRC, he said.
Previously, a non-performing asset means a financial asset where any amount receivable with respect to it was not received within 1 year. After the amendment, Non-performing assets also include an asset which the financial institution has classified as a loss in its books and for this particular asset the condition of 1 year arrear is not mandatory.
The transfer has now also been deemed by an operation of law (and not a mere transaction or an agreement between two parties). Previously, a financial institution could not transfer its non-performing assets to any CRC which was either established, owned or controlled by the same financial institution or its affiliates. After the amendment, non-performing assets can be transferred to a CRC even if it was established or is owned by the same financial institution, however, it should not be controlled by it.
Asif Kasbati stated that now the CRC may be appointed by a financial institution for the recovery of non-performing assets, provided that in an agency relationship, the financial institution shall not transfer such non-performing assets to the CRC.
A new section allows legal protection to the financial institutions for exchanging information on confidentiality basis, relating to obligor, with the CRC. Similarly, a new section has been inserted whereby, CRC shall be deemed a credit company for the purpose of Credit Bureaus Act, 2015, Asif Kasbati added.
Copyright Business Recorder, 2020