SECP amends CRC rules to facilitate corporate revamp

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has announced amendments to the Corporate Restructuring Companies (CRC) Rules, 2019, with key provisions aimed at facilitating companies in creating a conducive environment.

The amendments, disclosed in light of the Corporate Restructuring Companies Act, 2021, encompass the establishment of trusts and detailed procedures for trust liquidation by CRCs.

These amendments, delineating the Corporate Restructuring Board’s (CRB) composition, approval processes for CRC-presented schemes, appointment protocols, governance standards, code of conduct, functions, and budget allocation for operational efficiency, are tailored to bolster CRC operations.

Of particular significance are the amendments empowering CRCs to effectively acquire nonperforming assets (NPAs) from financial institutions and facilitating funding for such acquisitions by segregating risks and rewards. This ensures equitable compensation for investors while offering the potential for substantial returns.

According to SECP’s notification available with The News, corporate restructuring companies must notify the Corporate Restructuring Board of their decision to liquidate a trust within seven working days. Failure to comply may prompt the commission to initiate proceedings against the corporate restructuring company upon intimation by the board.

The liquidation of a trust may occur under various circumstances, subject to the approval of a three-fourths majority of the trust’s beneficiaries. These include the achievement of the trust’s objectives, such as the acquisition, disposal, resolution, or settlement of non-performing assets, with the net proceeds to be disbursed according to the trust’s constitutive document and transfer and assignment agreement.

In cases of trust liquidation, the corporate restructuring company must present relevant information regarding proceeds realisation to its board of directors. A liquidator will be appointed for the process, with a subsequent report to be submitted to the board upon its completion.

Throughout the liquidation process, adherence to provincial trust laws is mandated. Proceeds from the sale of trust property shall be allocated towards settling liabilities and meeting liquidation expenses before distribution among beneficiaries in proportion to their respective interests in the trust assets.

Upon conclusion of the liquidation procedure, the corporate restructuring company is obligated to furnish a detailed report to its board of directors, including steps taken for asset disposal, liquidation-related expenses, net assets available for distribution, and a certificate from the trust’s auditors.

Concurrently, amendments to the Corporate Restructuring Board (CRB) aim to streamline the regulatory approval process for arrangement schemes. Overall, the announced revisions are poised to significantly enhance the rehabilitation process for distressed entities, providing increased opportunities for companies to restructure and regain profitability, thereby contributing to enhanced economic stability.

CRCs specialise in acquiring NPAs from troubled financial institutions, utilising their expertise to efficiently manage and recover these assets. The CRC sector plays a vital role in reducing stressed assets in the banking sector through market-driven solutions, thus alleviating balance sheet pressures and bolstering economic stability. The revised rules were developed in consultation with the State Bank of Pakistan, the International Finance Corporation, and the public.

A CRB, established by the federal government through official notification, will consist of up to five full-time members, including at least three from the private sector. These members, appointed based on stringent criteria including extensive experience and integrity, must possess expertise in fields such as banking, accountancy, law, or economics, with specific emphasis on business revival and rehabilitation. The federal government appoints a chairman from among the members.

Appointment procedures involve a selection committee tasked with shortlisting candidates based on job descriptions and eligibility criteria. The committee advertises positions widely, conducts interviews, and submits a panel of three candidates for each position to the cabinet for final approval.

The chairman and members of the CRB shall be appointed for a maximum term of five years, without the option for renewal or extension. The chairman shall assume the role of chief executive officer and, alongside other members, oversee the policy and administration of the board, following procedures established by the board itself.

Members and employees of the CRB are required to adhere to the code of conduct already outlined in these rules. Additionally, individuals are ineligible for membership if they have been convicted of a morally reprehensible offence declared insolvent by a court, deemed unfit for duty due to physical or mental reasons by a government-appointed medical practitioner, involved in plea bargain arrangements with the National Accountability Bureau (NAB), or faced adverse actions by other financial regulatory bodies.