International experience in weak credit institutions liquidation
When the decision to revoke the license of a credit institution is passed, the credit institution will be placed under bankruptcy proceedings, including liquidation. A conservator is appointed to wind down the business. Depending on each country's policy, conservator may be appointed through administrative procedures or the courts. Liquidation can be implemented by the competent authority or by the conservator. In case the competent authority does not implement the liquidation, the authority may appoint and supervise an external conservator. If the court is in charge of the bankruptcy of a credit institution, the competent authority may or may not participate. For example, the banking supervision agency may request the court to place a credit institution under bankruptcy proceedings. However, once proceedings are opened, public administrations often have little or no role.
When a credit institution closes and withdraws from the payment system, the insured depositor is reimbursed or has their deposit accounts transferred to another credit institution or a bridge bank. The failed credit institution's assets are sold to another bank, moved to a bridge bank, or liquidated. The failed credit institution is dissolved and no longer exists. The deposit insurer develops various plans to reimburse depositors before the credit institution closes.
In countries with deposit insurance systems, most deposit insurers only reimburse insured depositors. Meanwhile, the court-appointed official conservator handles the claims of the credit institution's creditors and uninsured deposits. However, for some exceptional cases, such as the Indonesia Deposit Insurance Corporation (IDIC) and the Korea Deposit Insurance Corporation (KDIC), in addition to the reimbursement function, they also support the dissolved credit institutions in completing necessary procedures and documents as well as appraise the remaining assets to quickly and publicly carry out liquidation to ensure that the value of the liquidated assets offsets part or almost all the debts and optimizes the costs that the deposit insurance fund has to spend to reimburse to depositors and related costs that the Government has to pay to resolve weak credit institutions.
In Korea, the bankruptcy proceeding is a legal procedure in which the court seizes and liquidates the assets of a bankrupt credit institution and distributes the proceeds to the creditors of the bankrupt credit institution in priority. The courts supervise all bankruptcy proceedings regulated under the Bankruptcy and Rehabilitation Act. When the court declares bankruptcy, all assets of the credit institution, both domestic and foreign, are transferred to the bankruptcy assets, and the court appoints the KDIC as the official conservator to manage and dispose of the assets.
The official conservator is responsible for collecting as much money as quickly as possible through marketing, selling assets, participating in bankruptcy proceedings, and finally distributing the proceeds from the operations above to creditors in the form of bankruptcy dividends. Therefore, they must pay special attention to identifying all assets as of the date of bankruptcy declaration. More specifically, the conservator will control the cash, deposit accounts, title deeds, and safes of the property and close the accounts. The conservator must then require the creditors to file a claim with the court within a specified period to determine the amount of the claim. The KDIC will consider legal issues to recover and pay bankruptcy dividends in accordance with such claims.
Bankruptcy assets of failed credit institutions must be liquidated within a short period to recover the maximum amount, depending on the characteristics of each type of asset. The official conservator performs this activity until there are no more assets left to liquidate. After paying the final bankruptcy dividends, the conservator requests the court to declare the end of the bankruptcy proceedings. The court ends the bankruptcy proceedings by issuing a notice.
Insured institution's asset management and liquidation activities of the DIV
Since its establishment (in 1999), the insured institution's asset management and liquidation activities of the DIV have been divided into 02 phases.
Before the Law on Deposit Insurance was promulgated, the DIV operated according to Decree No. 89/1999/ND-CP, dated September 1, 1999, of the Government on Deposit Insurance and Decree No. 109/2005/ND-CP, dated August 24, 2005, of the Government on amending and supplementing a number of articles of Decree No. 89/1999/ND-CP; Decision No. 24/2006/QD-NHNN, dated June 6, 2006, of the Governor of the State Bank of Vietnam (SBV) on Promulgating Regulations on issuance and revocation of licenses for establishment and operation of people's credit funds (PCFs); opening and closing operations of transaction offices, branches, representative offices and transaction offices and transaction points of PCFs; division, separation, consolidation, merger of PCFs; liquidation of PCFs under the supervision of the SBV; Circular No. 03/2006/TT-NHNN, dated April 25, 2006, of the SBV on Guiding a number of contents in Decree No. 89/1999/ND-CP and Decree No. 109/2005/ND-CP; Circular No. 34/2011/TT-NHNN, dated October 28, 2011, of the SBVon Guiding the order and procedures for revoking licenses and liquidating assets of credit institutions and foreign bank branches; Orders and procedures for revoking representative office licenses of foreign credit institutions, other foreign organizations having banking activities and a number of other related documents.
The DIV has the power to participate in the process of managing and liquidating assets of insured institutions according to the provisions of law. During the liquidation process, the DIV is a member of the Liquidation Board of the PCF, whose license is revoked and dissolved. The Liquidation Board includes representatives of the Local Government, PCFs, Central PCF, and the DIV (Clause 1, Article 32, Decision No. 24/2006/QD-NHNN). The DIV can also be a member of the Liquidation Supervision Team of a credit institution whose license is revoked (Article 20 of Circular No. 34/2011/TT-NHNN). Depending on the credit institution model, the role of the DIV in the management and liquidation process may vary.
The DIV becomes a creditor of the insured institutions for the amount of reimbursement. In that case, the DIV will be distributed the asset value in the same order of payment as the depositors (after the fees and expenses of the dissolution of PCF and special loans from the State and other credit institutions to support the reimbursement (if any)) in case the insured institution is dissolved or bankrupt according to the provisions of law on dissolution and bankruptcy.
After the Law on Deposit Insurance was promulgated, the DIV operated according to Law on Deposit Insurance No. 06/2012/QH13, dated June 18, 2012; Bankruptcy Law No. 51/2014/QH13 (Bankruptcy Law 2014), Decree No. 22/2015/ND-CP, dated February 16, 2015, of the Government detailing the implementation of a number of articles of the Bankruptcy Law on official conservator and asset management and liquidation and a number of other related documents.
The DIV participates in managing and liquidating the assets of insured institutions according to Government regulations (Clause 13, Article 13 of the Law on Deposit Insurance) and recovers the amount it paid during the process of handling the assets of insured institutions according to the regulations of the SBV on revocation of licenses and liquidation of assets of foreign bank branches.
In case the DIV provides special loans to the PCFs, it is a member of the Liquidation Supervision Team, which includes representatives of the SBV's provincial/city branches, Vietnam Cooperative Bank, and the DIV (Circular No. 13/2019/TT-NHNN, dated August 21, 2019, amending and supplementing a number of articles of Circular No. 23/2018/TT-NHNN).
The 2014 Bankruptcy Law has a separate chapter regulating credit institution bankruptcy procedures. The credit institution's asset liquidation is also carried out according to the asset liquidation procedures of normal businesses and cooperatives. Accordingly, when opening bankruptcy proceedings, the judge will appoint an official conservator or an asset management and liquidation enterprise to manage assets and supervise the asset liquidation activities of the credit institution. The 2014 Bankruptcy Law also specifically stipulates who has the right and obligation to file a request to open bankruptcy procedures for a credit institution. Specifically, a credit institution is obliged to submit a request to open bankruptcy procedures. In case a credit institution does not submit a request to open bankruptcy procedures, the SBV shall submit a request to open bankruptcy procedures for that credit institution.
The DIV shall become a creditor of the insured institution for the reimbursement amount paid to the insured person from the date of reimbursement. The DIV is recovered with the reimbursement amount paid to insured depositors at the bankrupt credit institution in priority.
Regarding priority in asset payment, deposits and amounts paid by the deposit insurer to depositors are ranked after bankruptcy costs, salary debt, severance pay, social insurance, medical insurance for employees, and other benefits according to the labor contract and the signed collective labor agreement (Clause 1, Article 101 of the 2014 Bankruptcy Law).
The basic difference in the process of asset management and liquidation is that, in the period before the promulgation of the Law Deposit Insurance, the liquidation process was carried out by the Asset Management and Liquidation Team and with the participation of DIV. After the 2014 bankruptcy law was promulgated, the management and liquidation of assets of bankrupt credit institutions were carried out by the conservator, or asset management and liquidation enterprise, and DIV did not play any role.
In practice, in the period before the Law on Deposit Insurance was promulgated, the DIV reimbursed depositors at 38 PCFs with the recovered amount reaching 50.5%, the amount of debt written off over the amount to be recovered accounts for 46.8%, amount to be recovered accounts for 2.7%. For the unrecovered amount, the DIV continues to coordinate with the PCF Liquidation Board to continue the debt collection process. Since the Law on Deposit Insurance was promulgated, the DIV has reimbursed 01 bankrupt PCF. After the reimbursement, the DIV becomes a creditor of this PCF. The recovery of the amount that the DIV reimbursed to this PCF must wait for the court to open bankruptcy procedures and liquidate the assets of the People's Credit Fund according to bankruptcy procedures. Currently, the SBV has established a Debt Collection Team to recover the debts of this PCF.
Thus, Vietnamese law has approached international practices on the liquidation of failed credit institutions, such as regulations on credit institution asset management and supervision of the official conservator's credit institution asset liquidation activities. However, the authority to carry out asset management and liquidation varies among international experiences and in Vietnam,.
Some difficulties, suggestions and recommendations
Through the practice of monitoring and collecting debts, the DIV encountered the following problems: (i) the amount paid by the DIV has not been recovered because most of the liquidated assets at PCF are bad debts due to the borrower's inability to repay the debt, or the borrower's death, disappearance, or old age; some PCFs and PCF Liquidation Boards are currently no longer active; (ii) there is no mechanism or policy for the DIV to write off debt in case PCFs no longer have assets to pay the DIV; (iii) the 2014 Bankruptcy Law does not stipulate that DIV can participate in the management and liquidation of the insured institution's assets; Accordingly, the management and liquidation of insured institution's assets of are assigned to the official conservators or asset management and liquidation enterprises with practicing certificates.
On that basis, the author has a number of proposals and recommendations as follows:
Firstly, to maximize the recovery value after liquidation, we should consider regulating the insured institution's liquidation and asset recovery time. After the above liquidation period, in case there are no assets left to recover, based on the DIV report, the SBV will submit to the Government to decide on the complete handling of unrecoverable debts.
Secondly, we should continue to research and propose to competent authorities to allow the DIV to write off debts for insured institutions that are liquidated and have no assets to recover or are unable to recover or the Liquidation Board is no longer active.
Thirdly, since resolving a failed credit institution is not as simple as resolving a business because of the complexity of the operating network and the nature of the credit institution's activities related to related parties, it is necessary to consider assigning the management and liquidation of the assets of a credit institution to an organization to create an effective process and ensure financial stability./.
Department of Research and International Cooperation (translation)