Danaharta Act

Danaharta Act

Danaharta Act

Let’s begin by first defining what Danaharta is, Pengurusan Danaharta Nasional Berhad is owned by the Minister of Finance and it is a public company that has been incorporated under the Companies Act 1965. It was established by the Malaysian Government to act as the national asset management company otherwise known as AMC and the prime objective of the formation of this particular company was to re-energise the financial sector of Malaysia.

Danaharta was to achieve these objectives by buying the non-performing loans (NPLs) from the financial institutions that were facing such problems and then maximize their recovery value. Danaharta in this case will allow the financial institutions to focus on their main business when they buy the NPLs from the financial institutions. This basically means that a re-energised financial sector will promote confidence which will result in the revitalizing of the real economy.


Why the Danaharta Act?

In order for Danaharta to carry out its objectives the Pengurusan Danaharta Nasional Berhad Act 1998, which is a new legislation, has provided the legislative framework for it to do just that.

The Act will ensure that Danaharta is able to carry out its responsibilities in an efficient and economic manner. It is vital that Danaharta can carry out its objective quickly because the faster they can do so this means that there will also be greater benefits for both the economy and the taxpayers.

For this reason alone there are also AMCs around the world that have passed special legislation to confer to them the necessary powers so that they are able to achieve the objectives as stated.

 

What does this particular Act do?

The Act basically sets out Danaharta’s main objective that was mentioned earlier which is to act as the asset management company and to also manage, acquire, finance as well as to dispose of liabilities and assets. If you want to take a look at the detailed objectives of Danaharta, then it can be found in the Memorandum and Articles of Association.

According to the Act, Danaharta will have a board that consists of nine directors which have been appointed by the Finance Minister. Most the directors of the board will mostly come from the private sector; however the government who acts as a shareholder will have two representatives on the board. The managing director will be the one that leads the management of Danaharta and will also act as the non-voting member of the board.

There are also requirements to disclose conflicts of interests and obligations of secrecy, these measures have been put into place as to protect Danaharta’s integrity and independence. The provisions for such measures can be found in the Act and as mentioned the detailed powers and how Danaharta operates can be found in the Memorandum and Articles of Association. This shows that Danaharta is a compant that acts under the Companies Act as well as the desire of the government to see that Danaharta operates more along the commercial aspect.

 

Danaharta’s special powers

There are two special powers that have been granted to Danaharta by the Act and they include the ability to buy the assets through statutory vesting, this is important as it will enable Danaharta to acquire the assets with certainty of title. The second power is to appoint a special administration to manage the affairs of the distressed companies. Under the Danaharta Act is a feature of the special administration that combines the administration in Australia, the United Kingdom and Chapter 11 in the United States.

 

Statutory vesting

Danaharta must first agree on the terms of the acquisition with the seller before they can buy the asset, so for example if Danaharta wants to buy an NPL, they must first agree on the terms and conditions of the acquisition that also includes the price with the bank that is selling it. Both the parties can then proceed with the acquisition once the terms and conditions have been agreed upon.

In such situations the Danaharta Act will allow the Danaharta and the selling bank to effect the acquisition by way of statutory vesting. Upon the completion of the acquisition process, Danaharta will then issue a vesting certificate to prove that the acquisition has taken place. The vesting certificate can then be used for the purpose of registration, for example the vesting certificate when presented at the Land Registry of Land Office, the Registrar of Land or the Land Administrator will then record the Danaharta’s interest as the new charge replacing that of the selling bank.

This means that the statutory vesting will allow Danaharta to step into the shoes of the selling bank which means that Danaharta will be able to take the same interest as well as enjoy the same priority as the selling bank. So this means that if the selling bank had a first charge over the land as security for the NPL then Danaharta will also have the first charge over the land.

In addition to that Danaharta will also acquire the NPL that is subjected to all the registered interests and claims that are disclosed to it while the selling bank will remain responsible for any of the undisclosed claims. If there is a second charge that was registered over the land by another bank, then that second charge will continue to exist without any change in the priority. This means that any caveats that were lodged over that particular land will also continue to subsist. So in such cases while the statutory vesting will allow Danaharta to buy the NPL, they must also deal with the existing registered interests before Danaharta is able to foreclose the land. What is good about this Act is that it will preserve the interests of the third party’s rights.

Once Danaharta has bought the NPL they may choose to sell it through statutory vesting which will basically allow Danaharta to pass on the same interest that is found in the NPL to the buyer. However, the buyer should take note that before they can enjoy the benefits they will first have to obtain all the relevant regulatory approvals and if it involves land then approval from the relevant State Authority must be obtained first.

 

Special Administration

If the borrower in this case is a company, Danaharta may choose to appoint a Special Administrator over that particular borrower if they are unable to pay their debts or to fulfil their obligations. Also, the appointment that was made by Danaharta must meet certain requirements such as the maximization of the value or in the interest of the public before the Special Administration can be appointed; they must also seek the approval from an Oversight Committee which has been formed specifically for this purpose. The Oversight Committee will consist of three representatives one from each party that includes representatives from the Securities Commission, the Ministry of Finance and from Bank Negara Malaysia (Central Bank of Malaysia).

So once the Special Administrator has been appointed they will basically take over the control and the management of the assets as well as the affairs of the corporate borrower. In these circumstances, a 12 month moratorium will automatically come into effect so that the assets can be preserved until the Special Administrator can finish the jobs that they have been assigned to.

The workout proposal will then be prepared by the Special Administrator which is then passed on to an Independent Advisor which has been approved by the Oversight Committee. The main responsibility of the Independent Advisor is to review the reasonableness of the proposal that has been provided by the Special Administrator. The Independent Advisor will take into consideration the interests of all the creditors that include the unsecured as well as the secured and also the shareholders. The proposal along with the Independent Advisor’s report will then be given to Danaharta so that they can approve it.

Once the approval has been given by Danaharta for the proposal that was prepared by the Special Administrator, then the Special Administrator will call a meeting for the secured creditors so that they can consider as well as vote on the proposal. Before the proposal can be implemented there must be a majority of the voters who approve of the proposal by the Special Administrator. If the secured creditors approve of it then the relevant regulatory approvals such as that of the Securities Commission must be obtained.

 

Impact of the Act

As mentioned before in the earlier paragraphs the Act will basically provide the regulatory framework that will allow Danaharta to operate effectively, efficiently and economically in the interest of the public good. It will also allow Danaharta to obtain and convey title of assets that is subjected to only a defined set of obligations without disturbing the interests of others.

The use of skilled specialists will be utilized by the special administration of the corporate borrowers so that the company can benefits from the maximization of its value as well as a much needed turn around for the distressed enterprises. In cases where this option is not available then the lenders will most likely look toward liquidation while the holders of the security will rush to enforce the security and this will eventually bring down the weakened enterprise and erase value.

The provisions that are found in the Act have safeguards that will ensure that the special powers that are conferred on Danaharta are balanced and will be effective with a view to a measures rejuvenation and revitalization of the economy.

 

Summary of the Act

The Act basically provides for the special laws in the public interest for the management, disposition, acquisition and the financing of the assets and liabilities by Pengurusan Danaharta Nasional Berhad.

The main reason of the establishment of Danaharta is to:

  • Promote the revitalization of the economy of the nation by injecting liquidity into the financial system
  • Assist the financial institutions by removing the impaired assets
  • Assist the business sector by dealing expeditiously with the financially distresses enterprises

And as mentioned before the goals are to be achieved through the management, disposition, financing and acquisition of both the assets as well as the liabilities by Danaharta. This is where the Act comes in to make sure that the objectives are achieved in the interest of the public where the goals can be realized in a manner that is effective, efficient and economic.

The special administrators will have to be created and appointed where the expeditious administration and management of someone whose assets or liabilities have already been acquired by Danaharta. The duties, obligations as well as the powers of this special administrator will be derived from the existing legislations that are found in countries such as the United States, Australia and the United Kingdom.

After the Special Administrators have come up with a proposal, it will then be passed on to the Independent Advisors which was created in the Act where they will review that proposal. This is to ensure transparency and also to safeguard the rights of the third party, while reviewing the proposal the Independent Advisors shall take into consideration of the interests of the creditors whether they are secured or unsecured as well as the members who will be affected by the outcome of the decision. There is also the creation of the Oversight Committee by the Act that further safeguards the interests of the people that are affected as this particular committee will approve the appointment of the Special Administrators and the Independent Advisors as well as any of the extension of moratoria over affected persons.

 

Part I: Preliminary

Part I basically state the short title of the Act and also deal with its application and commencement. It will define the words that are used in the Act.

 

Part II: The Corporation

For the purpose of the Act, this particular part will confirm Pengurusan Danaharta Nasional Berhad as the Corporation. For further detail about its powers and obligations you can find them in the Memorandum and Articles of Association but basically Danaharta has been empowered to carry on the business as an asset management company to manage, dispose of, acquire and finance liabilities as well as assets.

The directors of Danaharta will consist of the ones that have been appointed by the Finance Minister and they include:

  • A non-executive chairman
  • A non-voting managing director
  • Two members that are representing the Government
  • Three members from the private sector
  • Two members from the international community

The board appointments and meeting will be found in the provisions of the First Schedule. As for Danaharta’s affairs they will be regulated by its Memorandum and Articles of Association that is subjected to the Act. To ensure that there is transparency in the way they conduct their activities, the director will not be allowed to participate or vote on the matters where they will have a conflict of interest in. Since Danaharta is considered to be a company, it will be required to keep its accounts in accordance with that of the Companies Act, 1965 and they will also be required to send a copy of its audited accounts to the Minister.

 

Part III: Acquisition of Share Capital of the Corporation by the Finance Minister

This section states that the capital share of Danaharta is to be acquired and initially held by the Finance Minister that is incorporated under the Minister of Finance (Incorporation) Act, 1957.

 

Part IV: Guarantee by the Government

Subject to Section 14 of the Financial Procedure Act 1957, Part IV will allow for the Government to guarantee the borrowings of Danaharta.

 

Part V: Acquisitions and Dispositions by the Corporation

Danaharta must have in their possession the means to obtain and convey absolute title of the assets before they are able to acquire and subsequently dispose of the assets in a prompt, economical and efficient manner. The means by how this is done is subjected to only a defined set of obligations and without the disturbing of the interests of others that are involved in the process. If the process cannot be dealt with in a way that is mentioned especially in terms of the distressed assets, it would then expose Danaharta as well as any other party that has acquired the assets from Danaharta to unacceptable and unquantifiable legal as well as financial risk.

Parties that are involved in the particular process should take note that there are existing laws that imposes contractual and statutory impediments to transfer the assets to and from Danaharta. If the mentioned impediments are not removed then this will prevent the financial institutions from selling their portions of their loan portfolios and this will also impede with the financial institution’s ability to deal with their non-performing loans. The laws will deprive the market of its much needed liquidity so in these cases the provisions that are found in the Act will remove the impediments while also preserving the rights of the third party.

The Act will allow Danaharta, in a way “step into the shoes” of the seller so that they are able to obtain the entire benefits of the interest of the seller in the assets such as the licenses, security interests, valuable and permits as well as to maximize its value to Danaharta and the subsequent buyers. Provisions found in section 50 of the Banking and Financial Institutions Act, 1989 has the same concept that is introduced in the method mentioned earlier.

This section also provides certainty of tide over the assets that have been acquired by Danaharta. With the consent of the seller Danaharta may elect to acquire the assets pursuant to Part V which applies with any of the necessary changes to an acquisition by a prescribed subsidiary of Danaharta.

Once an asset has been acquired by Danaharta then that particular asset would vest in Danaharta on the vesting date that has been specified in the vesting certificate issued by Danaharta. The vesting certificate will act as conclusive evidence that the asset has been vested in Danaharta. On and from the vesting date, Danaharta will acquire all of the seller’s interests, rights and title in the asset that is only subjected to the registered interests and claims that have been disclosed to Danaharta before the date of the vesting. Danaharta will also assume certain obligations that have been disclosed to them by the seller, so for example if the assets are a security for the payment of the discharfe of a liability such as a charge then Danaharta will have the same priority as the seller. One of the main effects of vesting is to preclude any person from raising any claims against Danaharta in terms of the assets unless the claim that was made is a disclosed claim. However, you should take note that the particular person that had made such claims will continue to have recourse against the seller.

Upon the delivery of the vesting certificate any person that is maintaining a register or record of ownership, security or interest such as the Registrar of Land and Registrar of Companies, must do anything that is necessary to give effect to the vesting. So for example if the asset in question is an interest over land, then the Registrar of Land will make a memorial on the register document of the title. The vesting certificate may also relate to an asset that is located outside of Malaysia.

This means that a person that has acquired an asset from Danaharta will be able to enjoy the benefits of vesting that has been conferred under Part V which is only subjected to the relevant regulatory bodies as well as the State Authorities. The disclosures that relate to the proposed acquisition or disposition will be permitted notwithstanding any law or agreement.


Part VI: Management of Assets

The current Malaysian legislation which also includes section 176 of the Companies Act 1965 does not provide for the judicial or administration management of assets. The practice in Malaysia is currently restricted to the consensual workouts and the appointment of a liquidator, receiver or a manager. So this means that in the current economic environment the options for the maximization of value through operational and financial restructuring as well as the necessary injection of the skill and cash arc is virtually absent.

In such cases the respective and understandable self-interests of both the creditors and borrowers present a deadlock which in other economise would be generally freed by formal judicial or administration management. So what is needed are properly qualified and appointed Special Administrators that have been approved by an independent Oversight Committee will be appointed to manage and control the distressed enterprises, where the economy can be diverted from a surge in the value-destroying liquidations and channel the nation’s energies toward the revitalization of the enterprises that are in distressed. The appointments can happen when Danaharta has been petitioned by the distressed enterprises themselves or through the diligent evaluation of Danaharta, where the distressed companies have demonstrated that they are no longer able to meet its obligation towards the creditors and that such Special Administration will result in the maximization of the value or will to serve in the interest of the public.

The restructuring that has been proposed by the Special Administrator will be scrutinized by the Independent Advisors who have been appointed by the Oversight Committee in order to protect the interest of all the parties involved. In this case the Independent Advisor will then prepare a report where the interest of the creditors both secured and unsecured as well as the members of the distressed enterprise will be taken into consideration.

The safeguards as mentioned along will the approval of the secured creditors for all of the workout proposals by the Special Administrator and the requirement for public notices that are set out in the Act will serve to ensure that there is transparency and certainty of the process. At the same Danaharta will provide the ability of the skilled specialists that have been brought on board specifically to manage these scenarios with the intention of turning around the performance of the companies that are in distressed through carefully defined powers and restrictions that have already been tested out in other countries. The key coordinative role will be played by Danaharta to ensure that the process will result in the maximization value of the distressed enterprises.

The provisions found in the Act along with its powers and controls that are balanced and effective will then be able to both rejuvenate the enterprises and revitalize the economy. So in the absence of the Special Administrator, it is most likely that the lenders will increasingly look towards liquidation while the holders of the security will rush to enforce their own security. This will result in the bringing down of the already weakened enterprises as well as the erasing of the value form the enterprises’ records.

So Part VI establishes the framework and the powers where Danaharta may be able to manage the assets that they have acquired should formal restructuring be appropriate. This section also provides for the appointment of a Special Administrator of a person that is affected which in this case refers to that of a corporate borrower, a subsidiary that has given security or a subsidiary the shares of which have been charged as security.

This is also where the Oversight Committee is established where the representatives comprise that from the Securities Commission, the Ministry of Finance and Bank Negara Malaysia, so that they can approve;

  • The appointment of the Independent Advisors
  • The termination of the Special Administrators
  • The appointment of the Special Administrators
  • The extensions of moratoria

A person that is affected may request for Danaharta to appoint a Special Administrator, if Danaharta is satisfied that the affected person will be unable to pay for its debts or to fulfil its obligations to the creditors or will be unlikely to pay for its debts or to fulfil its obligations, then Danaharta may recommend the appointment of a Special Administrator to the Oversight Committee that has been established specifically for this purpose. Similarly, Danaharta with its own initiative request the Oversight Committee to approve the appointment of the Special Administrator.

In either the cases, Danaharta must be satisfied that the appointment will be in the interest of the public or that it could achieve one or more of the following purposes which includes;

  • A more advantageous realization of the affected person’s business
  • The survival of the affected person as a ongoing concern

Once the Special Administrator has been appointed, Danaharta will then appoint an Independent Advisor that has been approved by the Oversight Committee. The Special Administrator cannot be appointed if a liquidator has already been appointed, over certain specified persons such as financial institutions and insurance companies, or where a scheme of arrangement has already been approved by the creditors.

So the administration of the affected person will start from the date of the appointment of the Special Administrator. And once the Special Administrators have been appointed they must, within two days notify the affected person regarding the appointment and within seven days notify the Registrar of Companies and publish a notice of their appointment.

From here on out the Special Administrator will be empowered to manage the assets and affairs of the affected person. For more information regarding the detailed powers of the Special Administrator you can find them in the Second Schedule. At this point the Special Administrator will act in accordance with the directions of Danaharta, however once a workout proposal has been approved they will act in accordance to that of the proposal.

The Special Administrator can be considered as an agent of the affected person. This means that without proper consent form the Special Administrator, the powers of all the officers will be suspended and not person will be able to deal with the assets of the affected person. In addition to committing the offense, that particular person will also be liable to compensate anyone that has suffered the loss or damage.

The officers of the affected person will also be required to deliver the books and records to the Special Administrator and basically assist them in what they are trying to achieve. So in this case the Special Administrator may also require the officers and employees of the affected person to provide them with the delivery of the records and books, disclaim or avoid certain assets, provide them with the information that they need and to seize certain property that belongs to the affected person.

A moratorium on all the claims and the proceedings against the affected person will take effect upon the appointment if the Special Administrator. This particular moratorium will last for a period of 12 months unless it is extended in accordance with the Act.

The main task of the Special Administrator is to prepare a proposal for the turnaround or for the rehabilitation of the affected person. As mentioned the Independent Advisor that has been appointed by the Oversight Committee will review the proposal and its relevance with the situation as well as taking into consideration the interests of the creditors that includes both the secured and unsecured and shareholders. The proposal will then be submitted to Danaharta to have the proposal approved.

Once the proposal has been approved by Danaharta, the Special Administrator will hold a meeting between the secured creditors to gain their approval for the proposal. If the majority of the secured creditors approve of the proposal, the Special Administrator will proceed to publish the details of the proposal and progress with the implementation of the proposal subjected to regulatory approvals. Modifications can still be made to the proposal especially if the Independent Advisor thinks it would be necessary. However it may require the Special Administrator to hold a meeting between the secured advisors so that they can consider the modifications.

However if the proposal has been rejected or is abandoned, Danaharta may require the Special Administrator to submit a new proposal, remove the moratorium or even appoint a replacement for the Special Administrator.

The remainder of Part VI contains provisions that deal with;

  • The joint appointments of the Special Administrators
  • Saving of things that are done
  • The minimum qualifications of the Special Administrators and the Independent Advisors
  • Obligation to report misconduct
  • Preservation of statutory time limits

 

Part VII: Additional Rights as a Chargee

This particular section ensures that Danaharta as well as any other person that has acquired an asset from Danaharta and has become a charge of any land will be able to dispose of the land by way of private treaty. Among the other things, Part VII is also intended to overcome the uncertainties that have resulted from the decision that was made in the Federal Court such as the case of Kimlin housing Development Sdn Bhd v Bank Bumiputra. That particular decision that was made by the Federal Court casted doubt on a chargee’s ability to exercise their power of sale conferred to that charge by contract.

 

Part VIII: Application of other Acts

This part provides the exclusion of the application of the Moneylenders Act 1951, the Islamic Banking Act 1983 and section 132G of the Companies Act 1965 to Danaharta. These exclusions have been granted to Danaharta given their unique mission.

 

Part IX: Application of the Act

The application of the Act to Danaharta and its subsidiaries is clarified in this section. As stated in Part V, Danaharta will be able to transfer assets among its subsidiaries and itself through the statutory vesting procedures. In this context a subsidiary is defined as an entity such as a company or unit trust scheme which is controlled by Danaharta.

As long as the subsidiaries remain as subsidiaries the Act will apply to each of them as prescribed by the Minister. So this means that the Act will cease to apply to the subsidiary if they do not carry on the activities that are in accordance with the objectives of Danaharta and at the same time the Minister revokes the prescription.

If the Minister of Finance incorporated ceases to hold more than 50% of the issued capital of Danaharta, the Minister in this case may direct that all or certain provisions of the Act ceases to apply to Danaharta. However, you can rest assured that any form of guarantee that has been given by the Government in accordance with that of Part IV will continue to subsist.

 

Part X: General

The provisions found in this section deals with immunity, judicial notice and secrecy while Danaharta is considered to be an entity that falls under Section 4(6) of the Companies Act, 1965. This means that no other person that the Minister may institute the winding up or any similar proceedings against Danaharta. In addition to that there are also certain protections that are made available to Danaharta as well as it officers and employees. This is to ensure that they are not prejudiced by the fact that they are the employees and officers of the company that was technically insolvent. The provisions are necessary due to the nature of activities that are conducted by Danaharta.

This section will also allow the Minister to make certain regulations that will preserve anything that has been done for Danaharta in anticipation of the enactment of the Act. If the Minister believes that the operation of the Act is no longer necessary to remain in force then the Minister can terminate it.

 

The National Land Code (Amendment) Act 1998

Danaharta is a public company that is incorporated under the Companies Act, 1965 and it is owned by the Minister of Finance Incorporated. It was established by the Malaysian Government to act as the national asset management company otherwise known as AMC and the prime objective of the formation of this particular company was to re-energise the financial sector of Malaysia. Danaharta was to achieve these objectives by buying the non-performing loans (NPLs) from the financial institutions that were facing such problems and then maximize their recovery value. Danaharta in this case will allow the financial institutions to focus on their main business when they buy the NPLs from the financial institutions. This basically means that a re-energised financial sector will promote confidence which will result in the revitalizing of the real economy.


What is the purpose of the Amendment Act?

The main purpose of the Amendment Act is to facilitate the acquisitions of the assets by Danaharta. According to the Danaharta Act, if Danaharta is interested in the buying of an NPL then they must first agree with the terms and conditions of the acquisitions that also includes the price with the selling bank. The acquisitions can then proceed once the terms and conditions have been agreed upon by both the parties. Danaharta will then issue a vesting certificate to prove that the acquisition took place once the acquisition has been completed.

Statutory vesting will allow Danaharta to step into the shoes of the selling bank which means that Danaharta will be able to take the same interest as well as enjoy the same priority as the selling bank. So this means that if the selling bank had a first charge over the land as security for the NPL then Danaharta will also have the first charge over the land.

Instead of taking a charge over land as security for a loan, sometimes the bank will take the lienholder’s caveat as a form of security. So this means that the Amendment Act will allow for the lienholder’s caveat to be transferred to Danaharta by the selling bank. Danaharta can then choose to sell the NPL through statutory vesting once they have bought the NPL. This way Danaharta will be able to pass on the same interest it has in the NPL to the buyer. While the Amendment Act will facilitate in this particular transfer, the buyer will still have to obtain all the regulatory approvals such as the approval of the relevant State authority if land is involved, before the transfer can be completed.

Danaharta will also be able to realize its security where necessary by way of private treaty which has been assured by the Amendment Act.

 

The effect of the Amendment Act

The Amendment Act basically allows for Danaharta to buy NPLs which are secured by land in a manner that is effective, efficient and economic. The Act has also made it clear that the existing registers interests will not prevent the transfer of the security to Danaharta. However, according to the Danaharta Act, Danaharta will be able to acquire the NPL subject to those registered interests.

So for example if a second charge was to be registers over the land by another bank, that particular charge will continue to exist without any sort of change in the priority. Also, any caveats that were lodged over the land will also continue to exist without any form of interference.

What this basically means is that while the statutory vesting will allow Danaharta to buy the NPL, Danaharta will have to deal with the existing registered interests before they can proceed in foreclosing the land. The provisions found in the Act that allows for this is to preserve the right’s of the third party.

 

Comparisons of Special Administration and other Workout Opportunities

 

Area of Comparison Special Administration (Danaharta) Administration (Australia) Administration (UK) Chapter 11
Person that is affected Corporate borrower of Danaharta Group and its security providers only Any company Any company Any company
Who can be appointed Danaharta:

  • At the request of the owners or management
  • On their own intiative but subject to the approval from the Oversight Committee
The company itself, liquidator or provisional liquidator, chargee Court on petition by the company, it’s directors or creditors Generally the company will remain in possession but the court may appoint a trustee on its own
Oversight Committee 3 members which have been appointed by the Minister of Finance where each of the members will come from the Securities Commission, Ministry of Finance and Bank Negara Malaysia None None None
Criteria The inability or the likelihood of the inability to pay the debts or fulfil their obligations to the creditors Insolvency or the likelihood of insolvency The inability or the likelihood of the inability to pay the debts Usually the inability to pay the debts as they are about to be due
Purpose The ongoing concern would be that of survival, a more advantageous realization as compared to winding up or in the interest of the public Increasing the chance of survival or results in better returns as compared to winding up The ongoing concern would be that of survival, a more advantageous realization as compared to winding up, voluntary arrangement or deed of compromise Reorganization that will result in the creditors receiving just as much as they would in the event of liquidation
Duration From the appointment until termination (generally upon the implementation of the workout proposal) From the appointment until termination (generally upon the approval of the workout proposal) From the appointment until termination in accordance with the court order Generally not applicable in such situations as the debtor will remain in possession
Role Control and management of the assets as well as the affairs:

  • The powers of the existing officers will be suspended
  • There will be no further dealings without the approval from the Special Administrator
Control and management of the assets as well as the affairs:

  • The powers of the existing officers will be suspended
  • There will be no further dealings without the approval from the administrator
Control and management of the assets as well as the affairs:

  • The powers of the existing officers will be suspended
  • There will be no further dealings without the approval from the administrator
Generally not applicable in such situations as the debtor will remain in possession
Status The agent of the company that is under administration The agent of the company that is under administration The agent of the company that is under administration as well as the court appointed officer Generally not applicable in such situations as the debtor will remain in possession
Protection There shall be a 12 month moratorium on all the proceedings and claims that will be subjected to an extension if prove necessary Moratorium on all the proceedings and claims for the duration of the administration Moratorium on all the proceedings and claims for the duration which shall be determined by the court Moratorium on all the proceedings and claims for the duration that is stated in Chapter 11
Functions They will investigate the assets and affairs and as soon as it is reasonably practicable for them, they will submit a workout proposal to both the Independent Advisor as well as Danaharta Investigates the assets and affairs and within a period of 21-28 days, unless it is extended will recommend to the creditors the course of action such as the termination of the administration or winding up Investigates the assets and affairs and within a period of 3 months, unless it is extended will submit a proposal to the creditors and then inform the court regarding the outcome The company will have a period of 4 months to file a plan of reorganization. If a trustee has been appointed, they will investigate the assets and affairs of the company, initiate action against the third party and file a plan of reorganization
Independent Advisor They have been approved by the Oversight Committee in order to review the reasonableness of the workout proposal while taking into consideration of the interests of the creditors as well as the shareholders None None None
Workout proposal Requires the approval of Danaharta and the majority vote from the secured creditors as well as subject to regulatory approvals Requires the approval from the majority vote of the creditors Requires 75% approval from the creditors Requires the approval of the impaired creditors (2/3 in value and 50% in the number from each of the class)
Binding nature Once the workout proposal has been approved, it will bind the company, its shareholders as well as its creditors Once the workout proposal has been approved, it will bind the company, its shareholders as well as its creditors (except the secured creditors that have opted out) Once the workout proposal has been approved, it will bind the company, its shareholders as well as its creditors Once the reorganization plan has been approved, it will bind the company, its shareholders as well as its creditors
Modifications If there are any modifications to the workout proposal, it must then refer to the Independent Advisor who will then review the reasonableness of the modifications and decide whether or not to seek the approval from the secured creditors Requires the approval from the creditors Any major modifications to the workout proposal must have the approval from both the administrator and the creditors Will only permitted if it has not been substantially consummated and the approval from the courts
Qualifications of the Special Administrator Individuals who are an approved company auditor or has the requisite experience or ability Individuals who are accountant or has the requisite experience or ability Practitioners or insolvency Not applicable
Qualifications of the Independent Advisor Accounting firms, merchant banks or any other entity with the requisite experience or ability Not applicable Not applicable Not applicable

 

The purpose of the Special Administration, Receivership and Liquidation

 

Special Administration Receivership Liquidation
Workout proposal for the purpose of achieving;

  • More advantageous realization of assets that could not be achieved through winding up
  • The ongoing concern of the survival of the company under administration
To deal with the assets of the company by the enforcement of the security for a particular creditor chiefly for the creditor’s benefit Winding up of the company which will eventually lead to the dissolution of the company in liquidation

 

The major differences between the Special Administration and Section 176 Scheme

 

Special Administration Section 176 Scheme
Initiated by Danaharta on its own initiative or at the request of the company’s management or shareholders Initiated by either the shareholders, liquidator, the company or the creditors
Requires the approval from the Oversight Committee No equivalent
The Special Administrator will prepare the workout proposal The person that is initiating the scheme will prepare it
The Independent Advisor will review of the reasonableness of the proposal There will be no independent review however there a court sanction will be required
Requires the majority vote of the secured creditors Requires the approval of the majority in number that represents 75% of the value of the creditors
There shall be an automatic 12-month moratorium (which can be extended depending on the situation) on all the claims and proceedings There will only be a moratorium that the approval from the court

 

How will the financial institutions that are affected benefit from the selling of their non-performing (NPLs) to Danaharta as opposed to keeping them

The financial institutions that are affected will be able to sell their NPLs at a fair value to Danaharta while removing them from the need to manage these NPLs which is actually a drain on the management’s resources. This will also allow the financial institutions to reduce their NPL ration which is often used as an indicator of the quality of their assets. This will also allow them to participate in a surplus sharing arrangement and any surplus that has been realized by Danaharta from the disposition of the assets that is over and above its cost of acquisition that include the directly attributable costs that will be shared with the selling bank on a ration of 80 (bank): 20 (Danaharta)

 

What industry sectors will Danaharta focus upon?

Usually Danaharta will not focus on any particular industry sector; however the portfolio of NPL will mirror that of the industry NPL portfolio which is basically made up of loans in the property and manufacturing sectors and for the purchase of the shares. The loans that are granted to these particular sectors are usually large which will allow Danaharta more opportunities to enhance the recovery value through various asset management strategies such as corporate restructuring.

 

Is it possible for the borrower to sell their loans to Danaharta?

No, Danaharta does not deal directly with the customers of financial institutions instead Danaharta only deals with the financial institutions itself. It would not be cost-effective for Danaharta to deal with loans that are in small amounts, so Danaharta will not acquire loans that are less than RM5 million. This basically means that consumer loans for housing and cars, credit card purchases and such will be excluded.

 

What will happen to the borrower if their banker sells their loan to Danaharta?

Borrowers need not to worry as nothing will happen; this is because the borrower will continue to owe the same amount that they have borrowed while the same terms of the loan will continue to apply. The only difference is that instead of making payments to the banker, the borrower instead makes the payments to Danaharta. Danaharta will use Maybank’s base lending rate as a reference point for the calculation of the interest as Danaharta is not a bank.

 

Does this mean that the borrower will need to pay more?

As mentioned before the borrower has nothing to worry about as everything will remain the same, since Danaharta is not a bank they will instead use the base lending rate of Maybank to calculate the interest in which the borrower will be required to pay and the same terms will be applied in this situation as well. So for example if the bank of the borrower had a base lending rate of 8.5% and they were charged a margin or spread of 1.5% then the borrower will be required to pay interest at 10%. In the event that Danaharta has bought the loans then they would use the current base lending rate of Maybank, for the sake of the argument say 8.3% but the same margin or spread which is that of 1.5%, which means that the borrower will be required to the interest at 9.8%.

 

Will Danaharta deprive the borrower of their collateral?

No, the borrower shall remain as the owner of their collateral. This in case all Danaharta will get is the same rights and interests as the charge that the selling bank had previously.

 

What if the value of the borrower’s collateral is more than that of their outstanding loan?

The collateral will remain as collateral for the loan on the same terms just as before and if the loans have not been paid and Danaharta sees that there is a need to realize the collateral then any of the excess from the proceeds of the realization after the payment of the outstanding loan will be returned to the borrower.

 

Does the Danaharta Act allow Danaharta to acquire assets by force?

The short answer to this particular question is no. The Danaharta Act will only allow Danaharta to acquire an NPL from the selling bank only if the bank agrees to sell it and it is on terms that are mutually acceptable. Since the selling bank is not selling the borrower’s property they will not require the consent from the borrower to proceed with the sale. Instead the bank is actually selling the interest in the NPL together with the attached rights, for example as the charge to a collateral property. And so, the borrower will still remain as the owner of the property that is also subjected to the same terms and conditions of the charge that the borrower has previously given to the bank.

&nbs

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