KARACHI: The State Bank of Pakistan (SBP) issued a circular on Monday allowing the establishment of corporate restructuring companies with the power to acquire, manage, restructure and resolve non-performing loans.

According to the circular, “corporate restructuring company” means a public limited company licensed by the Securities and Exchange Commission of Pakistan (SECP) to carry out the business of acquisition, management restructuring and resolution of non-performing assets of financial institutions and restructuring, reorganisation, revival and liquidation of commercially or financially distressed companies and their businesses.

“Financial asset” includes any short-, medium- or long-term interest- and non-interest-bearing loan, finance advance, lease instalment, term finance certificate and participation term certificate. It also includes Modaraba, Musharaka, Ijara, profit-and-loss-sharing agreement, redeemable capital, guarantee or contractual right to receive payment of money in respect of sums advanced or committed to an obligor by a financial institution.

“Non-performing asset” means a financial asset held on the books of a financial institution with respect to which the obligor has been in arrears for more than one year on any payment obligation and includes all security interests.

According to the circular, “obligor” means any individual, proprietorship, partnership, trust, company or other entity that has, with respect to a financial asset, a contractual or legal obligation to make payment, effect performance, provide security or collateral.

The SBP circular said that no corporate restructuring company will be incorporated without the prior approval of the commission. No corporate restructuring company will carry on business unless it is established as a public-limited company and holds a licence issued by the SECP.

A corporate restructuring company may exercise one or more functions like to acquire, buy, hold, manage, restructure, reschedule, resolve, settle, recover, assign, transfer and dispose of non-performing assets.

It may use power to deal with any loan, advance, financial commitment, lease, hire/purchase, rental, sale and buy-back arrangement and financial transaction or security interest relating to non-performing assets.

The company can acquire, take over, hold, re-organise, restructure, encumber, assign, sell, lease and otherwise deal with any asset, property, undertaking or collateral with respect to non-performing assets.

Also, it can acquire, hold, manage, restructure, reorganise, revive, merge, amalgamate, lease, liquidate, assign and dispose of distressed companies, their businesses and properties while it may advise, develop, advance, support, implement and raise finances for rehabilitation, restructuring, reorganisation or liquidation of distressed companies, their businesses and properties.

According to the circular, a financial institution may, with the prior approval of its board of directors, transfer and assign its non-performing assets to a corporate restructuring company.

Published in Dawn October 25th, 2016