The Finance Ministry insists that the concerns of Pakistan Banks Association (PBA) have been adequately addressed in the long awaited draft Corporate Rehabilitation Bill, 2010. Justifying the proposed legislation, Finance Ministry argues that the existing institutional arrangements and legal process for revival and rehabilitation of potentially viable companies are both inadequate and time-consuming.
Efforts in the past have been made largely on creditor-friendly laws. For example, the establishment of special banking courts, intensification of banking court procedures and criminalizing of failure to pay back bank loans were indicative of a pressurising approach to force recoveries for the banks. Such attempts have resulted in a serious imbalance of legal remedies between creditors and debtors.
Official documents obtained from Finance Ministry reveal that in the circumstances, it was proposed to develop a modern legislation in the public interest, which provides for an effective framework for the rehabilitation of potentially viable business entities in the country and avoidance of corporate closures through prolonged litigation.
Accordingly, in January 2009, the then Adviser to the Prime Minister on Finance and Revenue constituted a review committee headed by Chairman, Securities and Exchange Commission of Pakistan. The mandate of the Review Committee was to develop legislation for corporate rehabilitation and restructuring of bad debts in consultation with the stakeholders.
The committee held several formal and informal meetings for removal of economic and legal impediments. During these meetings, the industry stakeholders (particularly distressed industries) and sector specialists were invited to share their views with the committee members. Further, to cover a wider segment of stakeholders, copies of the draft law were sent to more than 80 individuals for their views and suggestions. The comments and suggestions of stakeholders from industry were sought to rationalise the law as per socio-economic requirements of the country. Separate meetings were also held with Pakistan Banks Association (PBA) to address their concerns.
According to the documents, the review committee drafted the law in the light of developments that have taken place in the last half decade and comments/ suggestions received from the stakeholders. The committee also considered the current international best practices and models in solvency and risk management.
The draft legislation will modernise the current insolvency regime in Pakistan by striking a balance between the rights of creditors and the needs of debtors through workable alternatives to liquidation. Moreover, it will provide for the institutional and operational arrangements for restructuring of bad debts and unviable business entities. The salient features of the draft Bill are follows:-
a) The proposed Corporate Rehabilitation Bill will define key terms such as, claim, creditors committee, custodian, debtor, debtor in possession, financial assets, insider, insolvency clause, insolvent, liquidation value, order of relief.
b) It will provide for the jurisdiction and powers of the High Court to take cognisance of actions under this law and passing appropriate orders thereupon.
c) It will provide for the constitution, role and the powers of a technical assistance committee to render expert advice on the insolvency matters and in particular, propriety of rehabilitation plans.
d) It will provide the administration process and appointment of administrators to manage a financially distressed company and turn it around. The powers and functions of the administrator will also be provided in the Bill.
e) It will also provide for the alternative process of mediation for resolving financial disputes between distressed companies and its creditors.
f) It will provide for automatic stay upon the granting of an order of relief by the court to allow breathing space to a company or its creditors to develop rehabilitation plan. All in vain
g) It will provide for safeguards against abusive or failed rehabilitation actions by converting them into winding-up actions.
h) It will provide for responsibility of those managing the distressed companies to make proper disclosures about the company affairs.
h) It will provide for parties who may file rehabilitation plans, their timing and contents, treatment of claims and interests for and against a distressed company, acceptance, rejection or confirmation of a plan and effect of confirmation or rejection.
i) It will provide for establishment, functions and powers of a Corporate Rehabilitation Board to oversee licensing, training and conduct of administration and liquidations.
j) It will provide for a detailed chapter on specialised companies licensed by the Commission to acquire, manage and restructure non-performing assets of financial institutions and restructure, reorganise and revive commercially or financially distressed companies and their businesses. The chapter will further provide for the framework on transfer, restructuring of disposal of non-performing loans to these companies.
In the meantime, Finance Division submitted a summary with the cabinet for obtaining approval of the cabinet for drafting legislation on corporate rehabilitation. The cabinet considered the summary in its meeting held on February 24, 2010 and approved it accordingly. Now the Finance Ministry has requested the cabinet to approve the draft Corporate Rehabilitation Bill, 2010 as vetted by the Law & Justice Division in terms of clause (a) of sub-rule (1) read with rule 27(5) (a) of the Rules of Business 1973.