BANKING PRESENTATION: DR J J DE JAGER

BANKING PRESENTATION: DR J J DE JAGER

BANK LIQUIDATION OBJECTIVES OF BANK LIQUIDATION CONCURSUS CREDITORUM Crystallise insolvent s position Hand of law laid on estate Rights of general body of creditors established No transaction involving single creditor to prejudice general body Each creditor s claim dealt with as existed at issue of liquidation order Walker v Syfret 1911 AD 141 at 166 2

BANK LIQUIDATION (2) OBJECTIVES OF BANK LIQUIDATION (continued) Argued that need exists for alternative to liquidation Provision must be made for fresh start and business rescue procedures Curatorship ito Banks Act provides such mechanism Purpose to enable bank to stem any run pay its debts meet its obligations become successful concern 3

BANK LIQUIDATION (3) INITIATION: BANK INSOLVENCY PROCEEDINGS Normally: Relaxation of prudential requirements reserve balance liquid assets Sale of marketable assets Possible LOLR assistance Curatorship Liquidation 4

BANK LIQUIDATION (4) INITIATION: BANK INSOLVENCY PROCEEDINGS (continued) CURATORSHIP Curator must manage bank: successful concern Prescribed reports to Registrar Once no longer reasonable probability of success Inform Registrar in writing Registrar may apply Minister for termination curator s appointment Court for liquidation 5

BANK LIQUIDATION (5) INITIATION: BANK INSOLVENCY PROCEEDINGS (continued) LIQUIDATION Application ito s68 Banks Act Registrar may oppose application by another Registrar designates liquidator to Master If application successful Court normally first grants provisional order; then final Procedure determined by Banks Act, read with Companies Act (Act No. 61 of 1973); further read with the Insolvency Act (No. 24 of 1936) 6

BANK LIQUIDATION (6) ROLES: CURATOR AND LIQUIDATOR CURATOR Management vests in Recover and possess all assets Keep proper records Comply requirements Companies Act Conditionally dispose of assets Meetings creditors Minister may grant further powers 7

BANK LIQUIDATION (7) ROLES: CURATOR AND LIQUIDATOR (continued) LIQUIDATOR Banks Act (s68) Registrar may appoint knowledgeable person to assist Voluntary winding-up: prescribed returns Registrar Companies Act (Chapter XIV) read with Insolvency Act Control, initially to Master then to liquidator Purpose: winding-up and distribution of assets to creditors, division of surplus amongst members Liquidator under control Master Duty to all creditors: Suffer least loss and receive best dividend Powers: own authority from meeting with creditors, members or contributors leave of court 8

BANK LIQUIDATION (8) TREATMENT: BANK DEPOSITS/OTHER CLAIMS Banks (Structure) Returns generated by subjecting funds to risk Vulnerability Weak secondary market Bank Deposits Banks custodian of public s money Largest portion of funds deposits Depositors normally not in position to make informed decisions 9

BANK LIQUIDATION (9) TREATMENT: BANK DEPOSITS/OTHER CLAIMS (continued) OTHER CLAIMS Shareholders and creditors normally deal with company on basis of negotiation and bargain Opportunity to do credit assessment price protect themselves Reserve Bank: in past reimbursed smaller depositors Banks Act and Companies Act no specific preference in liquidation 10

BANK LIQUIDATION (10) TRANSFER: ASSETS AND LIABILITIES Banks Act (s54) Bank one party Includes compromise, amalgamation, arrangement ito Companies Act No legal force unless approval Minister Companies Act (s311) Compromise, arrangement company and creditors sanctioned by Court Application company, member, liquidator 11

BANK LIQUIDATION (11) ASSET MANAGEMENT AND RESOLUTION; DEBT COLLECTION Historically Assets sold to another bank buying bank to manage and collect Assets retained in failed bank Curator or Liquidator tasked with management and collection Curator supervised by Registrar Liquidator supervised by Master 12

BANK LIQUIDATION (12) ASSET MANAGEMENT AND RESOLUTION; DEBT COLLECTION (continued) Curator Minister may grant powers Suspend, reduce rights of creditors Payments of capital or interest to any creditor Cancel agreements Convene meeting of creditors Settle with single creditor Cancel leases Cancel guarantees Take decisions for which special resolution normally required 13

BANK LIQUIDATION (13) ASSET MANAGEMENT AND RESOLUTION; DEBT COLLECTION (continued) LIQUIDATOR The meeting of creditors and members, or Master may, amongst others, authorise Agreement to offer of compromise by debtor Admit claims or demands Make arrangement creditors (except when insolvent) Carry on or discontinue business Sell property Enforce or terminate contracts 14

BANK LIQUIDATION (14) ASSET MANAGEMENT AND RESOLUTION; DEBT COLLECTION (continued) LIQUIDATOR (continued) Companies Act Contains number of provisions to protect creditors of liquidated insolvent company against certain dispositions of company s property provides liquidator with summary remedy to obtain restoration Remedies read with Insolvency Act 15

BANK LIQUIDATION (15) ASSET MANAGEMENT AND RESOLUTION; DEBT COLLECTION (continued) External Companies Company or association of persons incorporated outside RSA Required to register (s322 Companies Act) Renders them within jurisdiction Companies Act Important: Branches of foreign Banks authorised ito Banks Act LN Sackstein NO v Proudfoot SA (Pty) Ltd (SCA 7/3/2003) 16