IIBL fails to meet terms of revival plan: administrator mandated to ensure payments to depositors in min possible time

The Securities and Exchange Commission of Pakistan (SECP) has mandated the Administrator of the Innovative Investment Bank Ltd (IIBL), formerly known as Crescent Standard Investment Bank Limited (CSIBL) to ensure payments to the depositors in minimum possible time as the Bank failed to meet the agreed terms of revival plan on sustainable basis.
Sources told Business Recorder here on Monday that the administrator would examine all the viable methodologies before proposing restructuring, winding up, merger or injection of fresh liquidity to the Bank to secure depositors interest. The Administrator would try all restructuring and rehabilitation measures, finding an interested party willing to inject the requisite funds to pay the Bank depositors.
However, the administrator will have to safeguard the interest of the depositors and other stakeholders by preserving the value of the assets till any logical decision regarding the bank is reached. Being the regulator, the prime objective of the commission is to secure the interest of the depositors.
Approximately, Rs 3 billion is payable to the depositors and Rs 1 billion to the creditors representing institutions. However, there is no pending amount of small depositors having less than Rs 1 million in the Bank. Background of the case revealed that in year 2005 the Commission had initiated an on-site inspection regarding the affairs of CSIBL, unveiling gross financial irregularities and violations of prevalent regulatory framework.
Based on the inspection findings, the Commission superseded the Chief Executive Officer and Board of Directors of CSIBL. Subsequently, four parties including Innovative Global Business Group (IGB Group") carried out initial due diligence for revival of the Bank but only the IGB Group submitted a Revival Plan for the take-over and revival of CSIBL through injection of funds aggregating to Rs 1,500 million by way of merging CSIBL into a wholly owned company namely, Innovative Housing Finance Limited (IHFL).
The Commission after approval of the Scheme of Amalgamation by majority of all the stakeholders ie shareholders, depositors and creditors, vide its order dated June 27, 2007 sanctioned the Scheme of Amalgamation of CSIBL into IHFL under Section 2821 of the Companies Ordinance, 1984 ("the Ordinance") subject to certain terms and conditions which inter alia included:
1. The IGB Group shall inject Rs 800 million in IHFL before merger with CSIBL.
2. IHFL shall ensure injection of Rs 200 million and Rs 500 million in years 2008 and 2009, respectively in accordance with Revival Plan submitted to the Commission.
3. The depositors and lenders of CSIBL shall be repaid by IHFL ie the surviving entity in a manner and on terms and conditions not less than the agreed and communicated through the Revival Plan.
The sponsors of IGB Group had injected Rs 800 million into IIBL in 2007. However, they failed to inject the requisite funds during the years 2008 and 2009 as per the agreed terms of revival plan. They also failed to repay the first major principal instalment of Rs 750 million due to the depositors on July 29, 2009. It is pertinent to mention here that the next principal instalment of Rs 936 million will be due on July 29, 2010.
Despite grant of three licences and relaxation's from various provisions of law by the Commission, IIBL failed to repay the depositors as per agreed terms and also failed to carry out its operations in accordance with the revival plan.
Besides this, various other concerns such as viability of IIBL, non-appointment of Chief Executive, lack of interest by sponsors, inability of the BOD including the Chairman to perform its functions and discharge its duties etc were also expressed by the Regulator. In order to secure the interest of stakeholders of IIBL, SECP opted for the supersession of the board and appointment of an Administrator to ensure the following:
(a) The Administrator will safeguard the interest of the depositors and other stakeholders by preserving the value of the assets of IIBL till the logical conclusion of the case.
(b) The Administrator will make all reasonable efforts to rationalise the operations of IIBL and minimise its operating costs.
(c) In case a genuine party comes forward in acquiring IIBL, the Administrator will extend full support to the interested party in carrying out the due diligence. The Administrator will try to restructure and rehabilitate IIBL by finding an interested party who is willing to inject the requisite funds to payoff the depositors and ensure the long-term survivability of IIBL.
In the event where the Administrator is unable to find an interested party, he can then approach the Commission for its winding-up. Although, the winding-up process may take years to conclude, however, as mentioned above the safety of the assets of IIBL can be ensured from day one till SEC and the Administrator are forced to file a winding-up petition, SECP added.