Samjhana, NDB cases prove liquidation not a cakewalk

KATHMANDU, MAY 12 -

Two-and-a-half years after the liquidation process of Nepal Development Bank (NDB) started, the effort is yet to see fruition, sending a message loud and clear that such processes are no child’s play.

Although the NDB paid almost all liabilities, except for a portion of them it has with the Employees Provident Fund (EPF), its liquidator, Narayan Bajaj, is not sure when the liquidation process will finally end.

“Among the remaining assets, most of them need the court’s order to be settled and I cannot confirm when this process will end,” Bajaj said.

In another case, the liquidation of Samjhana Finance is yet to take momentum. It took almost one year for the Patan Appellate Court to appoint a liquidator in this case. Although the court first appointed Chartered Accountant (CA)

Tirtha Raj Upadhyaya as the liquidator, he abandoned the job after one-and-a-half months, citing health reasons. The court has, about three weeks ago, appointed another CA, Bijaya Ghimire, as the liquidator of Samjhana.

Experiences in the NDB and Samjhana cases show that a liquidation process is not a cakewalk. “As the law itself has provisioned longer procedures for liquidation, the

court alone cannot take a decision instantly without following the procedures,” said Nripdhwoj Niraula, the registrar at the Patan Appellate Court.

As per the Insolvency Act, the Appellate Court has to order the liquidation of a financial institution if it finds it necessary. “The court has to form a probe committee to recommend on whether a financial institution should be liquidated, then wait for the report, conduct a hearing, take a decision on liquidation and appoint a liquidator,” Niraula said. “It sometimes gets delayed due to public holidays and other technical reasons as well.”

Months before the Samjhana Finance was declared crisis-ridden on June 10, 2010, its depositors are not getting their deposits back, although some got a portion of them. It took the NRB one full year to refer the finance company for liquidation and another one year for the court to appoint a liquidator.

Newly-appointed Samjhana liquidator Ghimire said he hopes that he will be able to return the money of small depositors before the Dashain festival and complete the entire liquidation process by mid-July 2013.

According to him, Samjhana Finance has deposit liabilities of Rs 423.3 million, including accounted deposits of Rs 228.3 million and hidden deposits worth Rs 195 million. Likewise, its loans and advances to be recovered stand at Rs 415 million, including hidden loans of Rs 140 million. Its liabilities with other creditors are worth around Rs 65 million and fixed assets are worth Rs 30 million. Given the delay in the liquidation process, the court has demanded a liquidation plan from Ghimire. “I am preparing the plan and I have plans to complete the entire process within approximately 15 months,” Ghimire said.

The International Monetary Fund (IMF) is also expressing concerns about the protracted liquidation process of BFIs and has been lobbying for authorising the central bank to liquidate troubled BFIs. In its report on Nepal released in November 2011, the IMF said the legal regime for bank intervention entails significant delays. “Both the NRB Act and the Bank and Financial Instution Act (BAFIA), revisions to which have been under Parliamentary consideration for some years, provide the NRB options to intervene troubled financial institutions, and underpin the prompt corrective action (PCA) framework, but overlaps and conflicts raise uncertainty,” the report said. “Moreover, declaring a bank insolvent requires an appellate court ruling and the appointment of a special investigation to determine the institution’s viability, delaying action by months, and causing forbearance in the full application of the PCA framework.”

Amid international pressure on giving sweeping powers to the NRB, the central bank has also initiated preparations for a new NRB Act. A draft of the new Act says that the NRB will form a three-member special committee that will manage the assets by recovering the loans, selling non-banking assets and paying liabilities. “The same committee will ask the court to liquidate BFIs in order to scrap the existence of the company after managing the assets as much as possible,” said a senior NRB official. “Further, the NRB is also working to put forth certain preconditions for the liquidator for early completion of the entire liquidation process,” said Maha Prasad Adhikari, the deputy governor of the NRB.

Source: The Kathmandu Post