Chapter-12 Provisions Relating to  Mandatory Liquidation of Bank or Financial Institutions

Chapter-12 Provisions Relating to  Mandatory Liquidation of Bank or Financial Institutions

 

78. Application may be filed before the Court for Mandatory Liquidation of Banks or Financial Institutions: (1) The Rastra Bank may file an application to the court for mandatory liquidation of any bank or financial institution under this Chapter and a notice of application of such action shall be published in a daily newspaper of national level.

2. The Rastra Bank shall attach the following documents along with the application filed before the court for initiation of the process of liquidation of any bank or financial institution pursuant to Sub-Section (1):-

a. Details along with the reasons for mandatory liquidation of the bank or financial institution that the situation referred to in Section 79 is continue to persist,

b. Financial statement of the bank or financial institution.

3. Notwithstanding anything contained in Sub-Section (1), any of the following persons may, with the prior approval of the Rastra Bank, file an application to the court for liquidation that there exists a situation specifying the reasons to show the situation that a bank or financial institution may be subjected to mandatory liquidation pursuant to Section 79 :-

a. A joint application of the depositors having representation of more than twenty-five percent of the total deposit, who do not get the payment of the payable deposits or of more than one percent of the depositors, or

b. A person competent to file an application for mandatory liquidation according to the prevailing laws relating to insolvency.

4. In cases where the court orders for initiation of the process of liquidation of a bank or financial institution based on the application referred to in Sub-Section (1) or (3), the process of mandatory liquidation of the bank or financial institution shall be commenced from the date of giving of such an order.

79. Circumstances leading to Mandatory Liquidation of Bank or Financial Institutions: A bank or financial institution may be subjected to mandatory liquidation under the following circumstances:-

a. In cases where the matured deposit or the deposit to be repaid immediately or other financial liability could not be paid on time and is in due,

b. In cases where the capital fund of a bank or financial institution is negative,

c. In cases where the Rastra Bank recommends for liquidation of a bank or financial institution based on an inspection report of the bank or financial institution,

d. In cases where the shareholders with significant ownership or office-bearer of a bank or financial institution frequently commit acts causing obstruction against the rights and interests of the depositors for the development of financial system,

e. In cases where it is found that it is in frequent violation of the this Act and directives given by the Rastra Bank,

f. In other circumstances as determined by the Rastra Bank for mandatory liquidation of a bank or financial institution.

80. Transaction to be Suspended:(1) The Rastra Bank shall immediately after submission of an application to the court pursuant to Section 78 for mandatory liquidation of a bank or financial institution, suspend the entire financial transactions of such a bank or financial institution.

2. The Rastra Bank may, while issuing an order for suspension of financial transactions pursuant to Sub-Section (1), revoke the license of such a bank or financial institution.

81. Appointment of Liquidator: (1) The court may issue an order to the Rastra Bank to make recommendation for appointment of a liquidator for initiating process of mandatory liquidation of any bank or financial institution.

2. In cases where the court issues an order pursuant to Sub-Section (1), the Rastra Bank shall recommend the names of at least three persons for appointment to the Liquidator within fifteen days.

3. While making recommendation to the court by the Rastra Bank pursuant to Sub-Section (2), it will make recommendations from among persons having experience in the banking and financial sector and having a license to act as insolvency practitioners according to the prevailing laws.

4. The court may appoint one of the three persons recommended pursuant to Sub-Section (2) as liquidator.

5. After a Liquidator has been appropriated pursuant to Sub-Section (4), the Board of Directors of such bank or financial institution shall be deemed to have been ipso facto dissolved and unless otherwise ordered by the Liquidator, services of the entire office-bearers and employees appointed by the bank or financial institution shall ipso facto be terminated.

6. If the Liquidator appointed pursuant to Sub-Section (4) tenders his or her resignation, dies or the Rastra Bank deems that he/she is incompetent to perform the prescribed functions, the Rastra Bank shall file an application to the court according to this Section to appoint another Liquidator by removing such a liquidator.

7. The remuneration and terms and conditions of services of a liquidator shall be as prescribed by the court on the recommendation of the Rastra Bank.

82. Functions, Duties and Powers of Liquidator:(1) A liquidator appointed for the purpose of initiating the process of mandatory liquidation of a bank or financial institution shall, after his/her appointment, carry out the following actions:-

a. To publish a notice in a national level Nepali and English daily newspaper for information of shareholders and other concerned persons of the bank or financial institution within fifteen days of the appointment,

b. To send to the Office of the Company Registrar and the institution established as per the prevailing laws for guarantee of deposits for information with an authenticated copy of the order of mandatory liquidation within fifteen days of the appointment;

c. To post or cause to be posted a copy of such an order in a conspicuous manner at the principal place of business of the bank or financial institution and at each of its offices,

d. To broadcast the notice through a national level television and radio for four weeks at least once in a week after the appointment,

e. To perform such other functions as specified by the Rastra Bank.

2. After getting information as referred to in Clause (b) of Sub-Section (1), the Office of the Company Registrar shall make in the concerned registration book that an order of initiating the process of mandatory liquidation has been issued.

3. In addition to the functions, duties and powers as referred to elsewhere in this Act, the other functions, duties and powers of a liquidator shall, subject to the directives of the Rastra Bank, be as follows:-

a. To take custody of the office, books and accounts, records and assets of the bank or financial institution,

b. To carry out most essential regular functions of operation and management of the bank or financial institution,

c. To carry out all the functions to be carried out on behalf of or in the name of the bank or financial institution,

d. To appoint employees to render assistance in its functions,

e. To make the necessary expenses for operation, management and liquidation of the bank or financial institution,

f. To make coordination with institutions established by the prevailing laws for security of deposits,

g. To exercise all the powers to be exercised by the shareholders, General Meeting, Board of Directors and office-bearers of the bank or financial institution,

h. To carry out inquiry into the business and financial status of the bank or financial institution,

i. To merge or transfer the entire or some of the assets and liabilities of the bank or financial institution with another bank or financial institution with the approval of the Rastra Bank,

j. To get credit in mortgaging of the bank or financial institution,

k. If it is felt that it will be beneficial for the bank or financial institution to sell any assets or terminate any contract or liability, to sell such assets or to terminate such contract or liability,

l. To procure services of professional and qualified persons to render assistance in its functions as may be necessary,

m. To hold necessary discussions and enter into compromise with any creditor or borrower of the bank or financial institution,

n. To collect, protect and sell the assets of the bank or financial institution and to distribute according to this Act,

o. To conduct an inquiry into whether or not a Director, office bearer, employee, or any other person has committed fraud, cheating, or misrepresentation against the bank or financial institution or depositors or creditors and to take the necessary legal actions against them or to file any case or initiate a legal action on behalf of the bank or financial institution or to defend on behalf of the bank or financial institution,

p. If anyone has been using any property of the bank or financial institution, to withdraw it or to take legal actions to take such property or cash amount from the transaction which has been declared invalid back,

q. To prepare a report in every three months on the actions taken in the course of liquidation in such format as specified by the Rastra Bank and to submit it to the Court and Rastra Bank,

r. To carry out all other functions as may be required for liquidation of the bank or financial institution,

s. To perform other functions as prescribed by the Rastra Bank.

4. If any difficulty arises in the course of exercising any power or discharging any duty by a Liquidator under this chapter, he/she may file an application to the court to remove such difficulty.

5. In cases where the reasons stated in the application submitted pursuant to Sub-Section (4) are found to be reasonable, the Court may issue an appropriate order.

83. Effects of Order Relating to Liquidation: (1) In cases where the court orders for initiating the process of mandatory liquidation of any bank or financial institution, the order shall result in the following on the following matters:-

a. In cases where statuary limitations have expired as to any claim or right of the bank or financial institution, the statuary limitations of such claims or rights shall ipso facto be extended for upto six months from the date of issuing an order by the court to initiate the process of mandatory liquidation.

b. Except in circumstance as provided for in Clause (c), if any property or asset of a bank or financial institution has been withheld for any reason whatsoever, or such property has been mortgaged against any credit made available to the bank or financial institution, such property or asset shall ipso facto be released.

c. The functions concerning accepting deposits and lending credits shall ipso facto be stopped.

d. Case proceedings against the bank or financial institution in any court shall ipso facto be stopped and unless otherwise ordered by the court, court proceedings against such bank or financial institution shall not be revived:

Provided that in cases where there is any case sub-judiced at the Supreme Court as to the bank or financial institution, or it is necessary to seek clearance from the Supreme Court, the Rastra Bank shall file an application to that Court.

e. No interests or any type of additional charge shall be levied on the liabilities of the bank or financial institution.

f. Shares of such a bank or financial institution may not be transferred, mortgaged or stroke out its title:

. Provided however that the act of transfer, mortgage or striking out may be carried out with prior approval of the Rastra Bank.

2. If it comes to the knowledge of a Liquidator from any source that any action carried out before six months from the date of issuing an the order by the court to initiate the process of mandatory liquidation may harm or cause loss to the interests of the depositors or creditors of the bank or financial institution, the Liquidator shall submit to the court an application about it and information thereof shall also be given to the Rastra Bank.

3. In cases where the court finds from the application submitted pursuant to Sub-Section (2) by a Liquidator that any of the following actions was carried out, the court may declare such an action null and void:-

a. If a decision was made to offer a gift,

b. If any act that cause may harm to the rights and interests of the creditors or depositors was committed,

c. If payment was made or transferred before repayment of credits or the collateral was released, transferred or stroke out the title before the expiration of the term of the credit,

d. If a contract was executed with a view to imposing additional liabilities on the bank or financial institution that the ones normally prevailing practice in the course of operating any business,

e. If any agreement or transaction, other than those regular banking or financial transactions permissible under this Act, is found to have been executed,

f. If a contract was made with a view to providing employment to the relevant persons.

4. In cases where any bank or financial institution is subjected to mandatory liquidation, the following transactions shall be void:-

a. Preferential transactions made immediately before six months of the initiation of the process of mandatory liquidation or within the period of six months after initiation of the process,

b. Preferential transactions made with the relevant persons immediately before one year of the initiation of the process of mandatory liquidation or within the period of one year after initiation of the process,

c. Transaction as a result of which a bank or financial institution is subjected to mandatory liquidation, with a lower price immediately before one year of the initiation of the process of mandatory liquidation and other transactions made with low a lower price made within one year after initiation of the process;

d. Fraudulent transactions made immediately before two years of the initiation of the process of mandatory liquidation or within the period of two years after initiation of the process;

5. The Liquidator shall have to file an application to the court to cause to make transactions referred to in Sub-Section (4) as void.

6. If the court is satisfied that certain transaction are void, the court may issue the following order:-

a. To order the concerned person to pay to the Liquidator all or some of the amount the payment of which made by the bank or financial institution with regard to such transactions,

b. To order the concerned person to handover the assets so transacted or to pay the equivalent value to the Liquidator,

c. To issue an order to exempt or release, in whole or in part, the credit the bank or financial institution has availed, the security or collateral pledged by the bank or financial institution against that credit,

d. To issue an order to make any executed pardon, surrender or agreement concluded between the bank of financial institution and another person as void, ineffective or implementable as a result of the voidable transaction,

e. If additional order is required to be given for the execution of the order given under this Sub-Section, the court shall issue such an order as well.

7. In cases where any Director, office bearer, employee or any other person is found to have committed the acts referred to in Sub-Section (3) or (4) and the bank or financial institution has been suffering any loss or damage, they shall be liable to bear the compensation personally for such harm or damage.

84. Records of Assets and Liabilities: (1) A Liquidator shall immediately prepare a record of the assets, liabilities or potential liabilities of a bank or financial institution which has gone into mandatory liquidation under this Act and a copy of which shall be submitted to the Rastra Bank and another copy shall be retained at the concerned bank or financial institution.

2. The records to be prepared pursuant to Sub-Section (1) shall include the following details:-

a. Liabilities towards the depositors and creditors of a bank or financial institution,

b. Details of the entire assets and all types of liabilities of the bank or financial institution, and their estimated costs,

c. Contracts that a bank or financial institution has entered into for procuring services,

d. Significant transactions, the bank or financial institution has made before six months of the date of an order issued for mandatory liquidation.

3. The record referred to in Sub-Section (1) shall be updated in every trimester and be made available for inspection by the creditors as and when they wish.

85. Power to terminate Transactions: (1) A Liquidator may terminate the following transactions of a bank or financial institution within six month of the date of order issued by the court for mandatory liquidation of the bank or financial institution:-

a. Any contract concluded by the bank or financial institution concerning employment,

b. Any contract concluded for any services in which the bank or financial institution is a party,

c. All functions and contracts being carried out by the bank or financial institution in its capacity as a trustee,

d. Any regular function or business of the bank or financial institution or branches of the bank or financial institution according to the need and circumstances,

e. Any liabilities said to be borne by the bank or financial institution without any limit,

f. Other functions or proceedings as specified by the Rastra Bank.

2. For the transactions terminated pursuant to Sub-Section (1), no any type of additional amount and compensation may be claimed other than the due amount to be paid or liability to be borne by the bank or financial institution till the date of the termination of the transaction.

86. Notice to submit claims: A Liquidator shall, upon initiating the process of mandatory liquidation of a bank or financial institution, within the time line specified by the Rastra Bank, publish a notice containing clearly the following details asking the persons having any claim of any type with the bank or financial institution to submit his/her details of claim within one month from the last date of publication of the notice stating his/her claims and the amount he/she may receive:-

a. To publish a notice in any daily Nepali and English languages newspaper of national level,

b. To place or cause to be placed such notices at the main places of businesses of the bank or financial institution and post it at every office in a conspicuous manner.

87. Power of Liquidator to Accept or Reject Claims: (1) The Liquidator shall, within ninety days from the date of submission of the claim pursuant to Section 86 carry out an inquire into the claims and accept or reject the claim in whole or in part based on the evidences collected and information thereof shall be given to the claimant and public notice thereof shall also be published.

2. A claimant having his/her claim accepted or rejected in part pursuant to Sub-Section (1) shall, within fifteen days from the date of publication of the notice thereof, have to submit his/her claims again enclosing the additional evidences, if any.

3. If there is a need to make any amendment to in the claims made pursuant to Sub-Section (2), the Liquidator may change in whole or in part.

4. In cases where a claimant is not satisfied with the decision of the Liquidator made pursuant to Sub-Section (1) or (3), the claimant may file an appeal at a court within twenty-one days of after the decision comes to the knowledge of the claimant.

88. Classification of Claims: (1) The claims accepted, accepted partially or rejected pursuant to Section 87 shall by a Liquidator be recorded separately segregating them under different headings.

2. The claims accepted in part pursuant to Sub-Section (1) shall be included in the accepted list to the extent of acceptance and the rest of the claims shall be included in the list of rejected claims.

3. While preparing a list of claims, the name and address of the claimant, place, date and amount of payment and details as to whether or not any collateral for securing the claim shall be clearly stated.

4. If there is a dispute as to a claim, such a claim shall be stated in the list of disputed claims until its decision is made.

5. A Liquidator shall enlist the approved claims and the claims having no value in the list as he/she has fixed.

6. The claims of the secured creditors shall be separately classified.

(7) The approved claims shall be listed in such manner as to be placed it on the priority list in the payment process.

89. Meeting of Creditors: (1) The creditors of a bank or financial institution having its mandatory liquidation process initiated may form a Meeting of Creditors for mutual discussions and agreement

2. Subject to the directives given and conditions as specified by the Rastra Bank, the Liquidator of a bank or financial institution subjected to mandatory liquidation process may negotiable and build consensus as with the creditors and borrowers of such bank or financial institution, as may be necessary.

90. Liquidation Plan:(1) The Liquidator shall, within 30 days after completion of classification of the claims pursuant to Section 88, prepare a detailed plan of action of the liquidation of the said bank or financial institution and submit it to the court for approval, and information thereof shall be given to the Rastra Bank as well.

2. The following matters shall be incorporated into the liquidation plan to be submitted pursuant to Sub-Section (1):-

a. Detail description of the assets and liabilities of the bank or financial institution and their nature and quantity,

b. The previous and projected income and expenditure of the bank or financial institution,

c. Detail description as to whether to continue the current financial transactions of the bank or financial institution or to revoke them,

d. Decision or order of the court,

e. Details of the proceedings taken for compensation from a Director, office bearer or employee for the offences and other unlawful acts they have committed,

f. Detail description as to the classification of claims and priority order of payment,

g. Plan of sale and liquidity of the main assets or group of assets of the bank or financial institution,

h. Liabilities of the bank or financial institution and table of details of the probable payment to be made to the depositors and creditors within the upcoming ninety days,

i. Costs and expenses of the mandatory liquidation,

j. Other details as specified by the Rastra Bank.

3. The Liquidator shall update the liquidation plan referred to in Sub-Section (1) on a quarterly basis.

4. Once the liquidation plan is approved by the court, the plan shall have to be made available to the creditors of the bank or financial institution for inspection, whose claims are stated in the plan.

5. Notwithstanding anything contained elsewhere in this Act, no bank or financial institution, which has been subjected to mandatory liquidation, shall be recapitalized by making full or partial financing.

91. Advance Payment may be made to Depositors Immediately: (1) Notwithstanding anything contained elsewhere in this Chapter, the depositors of the bank or financial institution subjected to mandatory liquidation may be distributed up to one hundred thousand rupees per account as advance with a condition to settle the account at the time of payment of the deposit.

2. The advanced payment made pursuant to Sub-Section (1) shall be adjusted while making payment pursuant to Section 94.

92. Power to Sell Assets: The Liquidator may, subject to the directives given by the Rastra Bank, auction off or cause to auction off the entire assets of a bank or financial institution being in the process of mandatory liquidation including the assets mortgaged as collateral security of the approved secured claim of the creditors bank or financial institution as follows:-

a. At the place of transaction of the securities, foreign currencies or other assets that may be sold easily in the market,

b. The securities given for security of the loan of the creditor, foreign currencies or other assets that may be sold easily in the market, by the creditors by themselves,

c. If the Liquidator deems that no reasonable price could be received through an auction of assets, to them in any manner whatsoever,

d. To make other provisions as prescribed by the Rastra Bank.

93. Notice of Settlement of Claims: The Liquidator shall, in order to settle the claims according to the liquidation plan as referred to in Section 90, publish and broadcast a public notice stating the nature, quantity and priority order for payment of the claims.

94. Order of Priority for Payment: (1) A bank or financial institution that has been subjected to mandatory liquidation shall pay its liabilities in the following order of priority:-

a. Expenses incurred for mandatory liquidation,

b. An amount upto the amount paid for deposits insurance security made under the prevailing laws not exceeding the limitation of total approved claimed amount of the depositor or an equivalent amount, if payment has been made to a deposit insurance security organization incorporated under the prevailing laws for security of deposit,

c. The deposits remaining after payment made pursuant to Clause (b),

d. Salary, allowances and amounts for other liabilities payable to the employees of the bank or financial institution,

e. Amount payable to the Government of Nepal, local bodies, or the Rastra Bank,

f. Outstanding amounts payable to other banks or financial institutions as fees or valuation amount,

g. Amounts payable to other creditors and other claims;

h. Shareholders according to the prevailing laws.

2. Notwithstanding anything contained elsewhere in this Chapter, in case where a creditor submits an application agreeing to accept any of the assets that was not sold while auctioning pursuant to Section 91 in lieu of the amount which the bank or financial institution has to pay him/her, the Liquidator may transfer such assets to such a creditor according to the value of the asset as fixed by the Rastra Bank in its criteria.

3. Notwithstanding anything contained elsewhere in this Chapter, in cases where any asset has been pledged as security for the secured creditors, such asset shall be used only for fulfilling the liability towards them.

95. Unclaimed Goods or Amount: In cases where a notice has been issued under this Chapter to receive the amount or goods according to the details of the claims or liabilities and if the concerned person fails to show up to receive the amount or goods within the specified time, such amount or goods shall be kept under the responsibility of the Liquidator or other entity according to the direction given by the Rastra Bank.

96. Decision of Liquidation: (1) The Liquidator of the bank or financial institution that has been subjected to mandatory liquidation or having its license revoked by the Rastra Bank shall after completion of the process of liquidation submit an application to the court along with the details of the activities carried out requesting for liquidation.

2. In cases where the Liquidator submits an application to the court pursuant to Sub-Section (1), the court shall carrying an inquiry into its as may be necessary and may decide that such bank or financial institution has been subjected to mandatorily liquidation.

3. The Liquidator shall publish the decision given by the court pursuant to Sub-Section (2) in each national level newspaper of the Nepali or English language at least once and while publishing in such a manner, the main points of the order of the court and the liquidation report shall have to be mentioned.

4. Upon publication of the notice pursuant to Sub-Section (3), the Liquidator shall request the Office of the Company Registrar to remove the name of the bank or financial institution from the list of registration of companies and the Office of the Company Registrar shall publish the notice of removal of the name of the bank or financial institution from the Companies Registration Book in the Nepal Gazette accordingly.

5. The process of mandatory liquidation of the bank or financial institution shall be completed after removal of the name of the bank or financial institution subjected to mandatory liquidation after publishing a notice thereof in the Nepal Gazette pursuant to Sub-Section (4) and such a bank or financial institution shall be deemed to have been duly dissolved.

6. If there is any liability of a Director, Chief Executive, office bearer, employee or shareholder of the bank or financial institution or other person under this Act or other prevailing laws, such liability shall continue to remain as it is.

97. Mandatory Liquidation of Bank or Financial Institution Carrying on Transactions in More Than One Country: The process of mandatory liquidation of a branch of a bank or financial institution carrying out transactions in more than one country shall be as determined by the Rastra Bank by giving due consideration to international practices:

Provided that, mandatory liquidation of a subsidiary company of a bank or financial institution operating in more than one country shall be dealt with according to this Chapter.

98. No claim to be entertained: A creditor or other person who fails to submit a claim within the time line given while publishing a notice for the same pursuant to Section 86 shall not be entitled to make any claim thereafter:

Provided that if a depositor has failed to make a claim over the amount of money deposited in the account, his or her rights will not be affected merely for the reason that he or she has failed to make a claim.