SECP notifies rules for rehabilitation of sick companies

November 02, 2019

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The SECP said that the new law will enable financial institutions to transfer its non-performing assets to a corporate restructuring company. — Reuters/File
The SECP said that the new law will enable financial institutions to transfer its non-performing assets to a corporate restructuring company. — Reuters/File

The Securities and Exchange Commission of Pakistan (SECP) on Saturday notified the corporate restructuring companies rules, 2019.

"The enactment of rules provided institutional arrangements and legal processes for the revival and rehabilitation of potentially viable companies," a press release issued by the regulator said, adding that the rules were notified with the approval of the federal government.

"The rules were notified in terms of section 15 of the Corporate Restructuring Companies Act, 2016," it added.

Earlier, the Act was passed by the parliament to provide for the establishment, licensing and regulation of corporate restructuring companies and the manner in which they carry on business.

According to the SECP, the new law as introduced was perceived as a revolutionary step in acquisition, management, restructuring and resolution of non-performing assets of financial institutions besides restructuring, revival and liquidation of financially distressed companies and their businesses.

Generally, corporate restructuring happens when a corporate entity is experiencing significant problems and is in financial jeopardy.

The provisions of section 4 of the Act provides that no corporate restructuring company shall be incorporated or carry on business unless it holds a licence from the SECP and register as a public limited company.

"The corporate restructuring companies will be responsible to acquire and to manage and restructure or dispose of distressed companies, their businesses and properties. The restructuring companies will also support and raise finances for rehabilitation, restructuring, reorganisation or liquidation of distressed companies businesses and their properties," read the press release.

The SECP said that the new law will enable financial institutions to transfer its non-performing assets to a corporate restructuring company along with all titles, rights, privileges and remedies available and attached to such assets for its proper management.

"Globally, the process of corporate restructuring is considered instrumental to eliminate the financial crisis and enhance the corporation performance. Usually, the corporations facing the financial crunches hires a financial and legal expert for advisory and assistance.

"In the modern era, the management of the distressed corporations in order to improve its performance and to focus on its core strategy, dispose of non-performing assets and businesses which do not align with its core strategy."