It seems that Pakistan will have to wait a few more years before it has a law in place for the rehabilitation, reorganisation and restructuring of distressed corporate entities and their businesses. This is what the mood suggested at the consultation meeting called in by the Securities and Exchange Commission of Pakistan (SECP), yesterday on Monday at a Karachi hotel.
The government's deadline is fast approaching and the SECP has to submit its recommendations by the end of September 2012. Citing a few differences over the Corporate Rehabilitation Act, 2011, the SECP decided to convene a meeting to consult the draft contents with various stakeholders.
The meeting was presided by the SECP Chairman, Muhammad Ali, who was ably aided by his team members. What was supposed to be a stakeholder's meeting looked more like a bankers' gathering as the representation from the business community in the form of Pakistan Business Council (PBC) was not to be seen.
The SECP in its formal presentation laid down the salient features of the proposed law, along with the expected timeline the cases may take to be resolved. The argument of the CRA draft is built on the notion that 'companies are worth more alive than dead', further mention that provision of such a law for distressed corporate entities is vital to encourage economic growth and development.
The first one to raise objections on the draft was the renowned lawyer, Salman Akram Raja, who went on to list scores of points, which in his view need major revamps. Questions were raised over the administrator's ability to determine the claims and why is there no need for an administrator in case of voluntary filing.
Raja went on to say that "this law will create an industry for litigation". He was heavily critical on the timeline of 180 days that the proposed law outlines, adding that timelines are meaningless as courts cannot be directed to follow a specific timeline. The question of readiness of the local judiciary system was also raised as Raja believes Pakistani courts are not sophisticated enough, and direct comparisons to the US cannot be drawn in the is regard.
Executive Vice Chairman Arif Habib Investments Limited, Nasim Beg was of the view that the CRA Draft is debtor driven, and does not protect the creditors' interest the way it should. There were remarks from other participants representing the banking sector that the world is now adopting a creditor driven model, therefore, Pakistan needs to look into other models such as those in UK, Germany, France and Australia. Pakistan Banks' Associations' (PBA) representative echoed similar views saying that the CRA Act is not consistent with Pakistani environment and that it is the borrowers' practices of keeping double books that need be looked into instead.
The banks' regulator, SBP was also on the same page as the SBP's representative criticised the draft for overly protecting the debtors. He was of the view that we should instead free up the resources locked by distressed and bankrupt entities. He went on to the extent of saying, albeit, on a lighter note that it is actually the banks who are in need of some rehabilitation.
In the absence of a representative from the borrowers' side, it expectedly turned out to be a largely one-sided affair, save for a lonely voice of a senior media professional, calling for a more balanced approach in the formulation of CRA Act. He stressed on the need of bankers be trained for cash flow banking rather than relying on heavily collateralised banking.
The restriction of a minimum of Rs 50 million for an involuntary case to be filed was also criticised by him, who pointed that the SMEs will be the worst affected from this. He urged the SECP to play a balancing role for smooth functioning of business.
The SECP Chairman conceded that the draft may have some loopholes as pointed such as timelines, but he also stressed that the final decision lies with the government and the SECP can only pass on the recommendations. He opined that it may not be possible to scrap the existing draft and start from the scratch, but he was hopeful that with the help of SBP, the recommendations can be pushed harder in front of the government.