Vol 12 (2015) - Issue 1

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The Role of Danaharta in Managing and Rehabilitating Financially Troubled Companies in Malaysia – Part Two

1. Introduction
As discussed in Part 1, the Danaharta Act 1998 ('DA 1998') afforded Danaharta the power to buy Non-Performing Loans ('NPLs') from the financial institutions (‘FIs’) and to prohibit injunctions against Danaharta. Part 2 resumes by looking at the rehabilitation of ailing companies under Danaharta and discussion of whether Danaharta and the Danaharta Act can be considered draconian. The role of Prokhas as an agent of Danaharta once it ceased operation will subsequently be discussed. Finally the role of Danaharta in corporate rescue will be analysed.

2. Rehabilitation of ailing companies under Danaharta
Danaharta performed two key interrelated objectives: first it aimed to remove the NPLs from the FI (or in other words, help rehabilitate the FI who would otherwise be in financial trouble); secondly it attempted to maximize the recovery value of the acquired assets by effective management. Having acquired the NPLs, Danaharta attempted to rehabilitate and restructure them to maximize the prospects of recovery. Danaharta’s rescue methods can be divided into viable loans and non-viable loans. For viable loans each borrower was given one opportunity to restructure their loan to achieve performing loan status subject to compliance with Danaharta’s loan restructuring principles and guidelines (and this helped rehabilitate the company with the NPLs).1 Here, Danaharta employed the 'soft approach', consisting of three major methods:

i. Plain loan restructuring – principally includes rescheduling of loans through the extension of a loan tenure to facilitate the borrower’s repayment over time;
ii. Settlement of loans – borrower chooses for a one time settlement for the loans via cash, set off assets or a combination of both, normally within 12 months; and
iii. Voluntary scheme formulated by both borrowers and creditors for the purpose of restructuring the loans via the CDRC.

The 'soft approach' changed the ailing companies’ fortunes by giving company borrowers a chance to restructure their NPLs, rather than have the creditors (such as the banks) petition for winding up to recover their loan. This way they could become performing again and the company would be able to resume its business. Additionally the company borrower could use Danaharta’s published loan restructuring principles to help the parties in the restructuring of viable loans.