Corporate Restructuring Companies Act 2016: Bill to facilitate revival of distressed assets, cos

ISLAMABAD: The National Assembly has passed major amendments in the “The Corporate Restructuring Companies Act 2016 to enable Corporate Restructuring Companies (CRCs) operate efficiently and extend financing facilities for carrying out the purposes of the CRC Act.

The Corporate Restructuring Companies (Amendment) Bill 2021 was approved in NA’s session on June 10, including other 20 legislations.

Sources told Business Recorder here on Sunday that the Corporate Restructuring Companies Act, 2016 was promulgated to facilitate revival of distressed assets and companies. Under the CRC Act, SECP licenses Corporate Restructuring Companies that engage in business of acquiring and managing non-performing assets (NPAs) from financial institutions and banks. The existing institutional arrangements and legal processes for revival and rehabilitation of distressed entities are time consuming and inadequate, which make the rehabilitation of distressed entities challenging. Moreover, the existing CRC Act does not have necessary provisions to facilitate smooth operations of CRCs.

The amendments have been introduced in line with the Government’s vision of reviving the distressed economic assets of the country and they will also enable the CRCs to reach compromise with the distressed entities expeditiously.

Following are the key changes to the CRC Act:

I): The definition of non-performing asset is amended to include any payment obligation which has been classified by the financial institution (FI) as a loss in its books in accordance with applicable laws.

II): CRCs are empowered to perform additional functions to provide finance for the purposes of the CRC Act to establish and provide management services to trusts. The CRCs will be able to form different trusts into which NPAs can be transferred for its smooth functioning, ring fencing of risks and rewards, enabling it to raise funds

through securitization from qualified institutional domestic/ foreign investors.

III); CRCs would act as an agent for any financial institution for the purpose of recovering their NPAs with a view to make CRCs self-sustainable. However, CRCs will not be allowed to take over NPAs of such financial institutions, for whom it will act as recovery agent and develop and implement schemes for rehabilitation of distressed entities.

IV): The CRCs holding 2/3 rd of principal amount payable to secured FIs will be empowered to develop and implement schemes for rehabilitation of distressed entities enabling prompt debt aggregation and present them to

Corporate Restructuring Board (CRB) for sanction i.e. sale/lease of business of obligor, rescheduling of repayments, enforcement of pledge, settlement of dues etc. by obligor.

The amendments provide for constitution of a Corporate Restructuring Board (CRB)

by the Federal Govt. comprising maximum 5 members. The CRB is empowered to sanction or decline the Schemes presented to it by the CRCs under the provision of CRC Act. This will allow expeditious decisions for revival of distressed assets.

Sources said that the amendments will provide that transfer of NPAs to CRCs happen by operation of law and not by virtue of the agreement. This critical distinction will ensure that NPA transfer has the force of law so that no stamp duty is applicable on the transfer.

The amendments would enable exchange of information between financial institutions and the CRCs, enabling CRCs to conduct due diligence of NPAs at the time of their acquisition. No legal proceedings shall lie against any financial institution or its officers for any damage caused or anything done in good faith;

The amendments provide that the High Courts shall constitute special benches Judges to adjudicate cases under CRC Act to facilitate prompt resolution of litigation cases for CRCs and improve their recovery yield against NPAs.

A new provision is inserted to provide protection to the transfer/ assignments of NPAs to the CRC by the financial institutions executed under any rules, regulations before passage of the CRC Act, 2016, sources added.

Copyright Business Recorder, 2021