Malaysia Financial Law - Danaharta Act

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FINANCIAL LAW - Danaharta Act

Related Topics : Banking Law . Offshore Banking Law . Broker Disputes . Commodities Law . Investment Terms . Raising Capital . Securities Law . Buying On Hire Purchase . Exchange Control Rules . Danaharta Act

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Summary of The National Land Code (Amendment) Act 1998

Purpose of the Act

The National Land Code (Amendment) Act 1998 (the "Amendment Act") is intended to facilitate the implementation of the Pengurusan Danaharta Nasional Berhad Act 1998 (the "Danaharta Act").

The Danaharta Act provides the legislative framework for Pengurusan Danaharta Nasional Berhad ("Danaharta") to undertake its unique mission.

Danaharta

Danaharta 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.

What does the Amendment Act do?

The Amendment Act facilitates the acquisition of assets by Danaharta.

Under the Danaharta Act, if 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. On completion of the acquisition, Danaharta will issue a vesting certificate to evidence the acquisition.

The Amendment Act clarifies that the vesting certificate will be conclusive evidence of the transfer of the NPL to Danaharta. This vesting certificate will be used for purposes of registration. Thus, for example, if the NPL is secured by a charge over land, upon presentation of the vesting certificate, the Registrar of Land will record Danaharta's interest as the new chargee in place of the selling bank.

Diagram 1 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 the land as security for the NPL, Danaharta would also have a first charge over the land.

Sometimes, a bank does not take a charge over land as security for a loan. Instead, the security it has takes the form of a lienholder's caveat. In this case, the Amendment Act allows for the lienholder's caveat to be transferred by the selling bank to Danaharta.

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 (such as the approval of the relevant State authority where land is involved). The Amendment Act facilitates this transfer.

Finally, the Amendment Act ensures that Danaharta is able to realize its security where necessary by way of private treaty.

The effect of the Amendment Act

The Amendment Act allows Danaharta to buy NPLs which are secured by land in an efficient, economic and effective manner. It makes clear that existing registered interests will not prevent the transfer of the security to Danaharta. However, under the Danaharta Act, Danaharta would acquire the NPL subject to those registered interests.

Thus, for example, 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.

In other words, 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.

Information compiled and extracts
from Danaharta Nasional Berhad

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