Background To The Danaharta Act
Pengurusan Danaharta Nasional Berhad is a public company incorporated under the
Companies Act, 1965. It is owned by the Minister of Finance Incorporated.
Danaharta was established by the Government of Malaysia to act as the national
asset management company (or AMC). Its prime objectives are to re-energise the
Malaysian financial sector by buying non-performing loans (NPLs) from financial
institutions and maximize their recovery value.
By buying NPLs from financial institutions, Danaharta will allow them to focus
on their core business of lending. A re-energised financial sector promotes confidence
which in turn will assist in revitalizing the real economy.
Why the Danaharta Act?
The new legislation - the Pengurusan Danaharta Nasional Berhad Act 1998 - is required
to provide the legislative framework for Danaharta to undertake its unique mission.
The Act ensures that Danaharta is able to do its job in an efficient and economic
manner. This is important because the quicker Danaharta can complete its special
mission the greater the benefits to the economy and taxpayers.
For this reason, AMCs around the world have had special legislation passed to
confer on them the necessary powers for them to achieve their mission.
What does the Act do?
The Act sets out Danaharta's main objective which is to act as the asset management
company and to acquire, manage, finance and dispose of assets and liabilities.
Danaharta's detailed objects are contained in its Memorandum and Articles of Association.
Under the Act, Danaharta will have a board of nine directors appointed by the
Minister of Finance, most of whom will be from the private sector. As shareholder,
the government will have two representatives on the board. Danaharta's management
is led by a managing director who will be a non-voting member of the board.
The Act contains provisions to protect Danaharta's independence and integrity.
These include the requirement to disclose conflicts of interests and obligations
of secrecy. Danaharta's detailed powers and how it will operate are regulated
by its Memorandum and Articles of Association. This reflects the fact that Danaharta
is a company under the Companies Act and also the Government's desire that Danaharta
operates along commercial lines.
Danaharta's special powers
The Act confers on Danaharta two special powers. First, the ability to buy assets
through statutory vesting. This is essential to enable Danaharta to acquire assets
with certainty of title.
Second, the ability to appoint special administrators to manage the affairs of
distressed companies. The features of a special administration under the Danaharta
Act combine those of administration in Australia and the United Kingdom and Chapter
11 in the United States.
Before Danaharta can buy an asset, it must agree on the terms of the acquisition
with the seller. If, for example, Danaharta wants to buy an NPL, it must first
agree on the terms and conditions of the acquisition (including price) with the
selling bank. Once those terms and conditions have been agreed by both parties,
they can then proceed with the acquisition.
The Danaharta Act allows Danaharta and the selling bank to effect the acquisition
by way of statutory vesting. On completion of the acquisition, Danaharta will
issue a vesting certificate to evidence the acquisition. The vesting certificate
will then be used for purposes of registration. Thus, for example, upon presentation
of the vesting certificate at the Land Registry or Land Office, the Registrar
of Land or Land Administrator will record Danaharta's interest as the new chargee
in place of the selling bank.
Diagram I summarizes the
effect of statutory vesting. Essentially, it allows Danaharta to step into the
shoes of the selling bank. Danaharta is then able to take the same interest and
enjoy the same priority as the selling bank. If the selling bank had a first charge
over land as security for the NPL, Danaharta would also have a first charge over
In addition, Danaharta would acquire the NPL subject to all registered interests
and claims disclosed to it. The selling bank will remain responsible for any undisclosed
claims. If a second charge was registered over the land by another bank, that
second charge would continue to exist without any change in priority
(see Diagram 2). Likewise, any caveats lodged
over the land would continue to subsist. This means that although statutory vesting
allows Danaharta to buy the NPL, Danaharta must deal with the existing registered
interests before it can foreclose on the land. In this manner, the Act preserves
essential third party rights.
Once Danaharta has bought the NPL, it may choose to sell it through statutory
vesting. This will allow Danaharta to pass on the same interest it has in the
NPL to the buyer. The buyer must, however, obtain all relevant regulatory approvals
and, where land is involved, also the approval of the relevant State Authority.
Where a borrower is a company, Danaharta may choose to appoint a Special Administrator
over the corporate borrower if the corporate borrower is unable to pay its debts
or fulfill its obligations. In addition, Danaharta must be satisfied that the
appointment could maximize value or is in the public interest.
Before a Special Administrator can be appointed, Danaharta must seek the approval
of an Oversight Committee formed for this purpose. The Oversight Committee will
comprise three representatives, one each from the Ministry of Finance, Bank Negara
Malaysia(the Central Bank of Malaysia) and the Securities Commission.
Once appointed, the Special Administrator will take over the control and management
of the assets and affairs of the corporate borrower. In order to preserve those
assets until the Special Administrator is able to finish its job, a 12-month moratorium
automatically takes effect. During that time, no one may take action against the
The Special Administrator will prepare a workout proposal which is then given
to an Independent Advisor approved by the Oversight Committee. The Independent
Advisor's role is to review the reasonableness of the proposal taking into consideration
the interests of all creditors (whether secured or unsecured) and shareholders.
The proposal together with the Independent Advisor's report are then given to
Danaharta for approval.
If Danaharta approves the proposal prepared by the Special Administrator, the
Special Administrator will call for a meeting of secured creditors to consider
and vote on the proposal. A majority in value of secured creditors at the meeting
must approve the proposal before it can be implemented. Once approved by secured
creditors, relevant regulatory approvals (such as from the Securities Commission)
must be obtained.
Diagram 3 shows the flow
of events from the appointment of a Special Administrator to implementation of
a workout proposal.
Impact of the Act
The Act provides a framework which will enable Danaharta to operate efficiently,
economically and effectively for the public good. It allows Danaharta to obtain
and convey title to assets subject only to a defined set of obligations without
unduly disturbing the interests of others.
The special administration of corporate borrowers provides a much needed option
for maximizing value through the use of skilled specialists to turn around distressed
enterprises. Without this option, lenders will increasingly look to liquidation
and holders of security will rush to enforce their security. This in turn will
bring down weakened enterprises and erase value.
The safeguards contained in the Act ensure that the special powers conferred on
Danaharta are balanced and effective with a view to a measured rejuvenation and
revitalization of the economy.
from Danaharta Nasional Bhd.