The legal framework
The liquidation of credit institutions is governed by the Credit Institutions Act, which provides that a credit institution may be wound up in three cases:
by resolution of the general meeting of shareholders (i.e. self-liquidation);
by court order; or
in the event of a bankruptcy.
Unlike a self-liquidation and a liquidation by court order, the bankruptcy procedure applies to situations where a credit institution does not have enough assets to pay off creditors. This means there is no way of restoring the bank to solvency and its creditor claims cannot be satisfied. As part of insolvency proceedings, the court will decide to start a bankruptcy procedure to be run by an administrator appointed by the court.
Whenever a credit institution goes into liquidation, the Financial and Capital Market Commission (“FCMC”) has the power to control the liquidator’s activities associated with the liquidation, including reading any documents relating to the bank as well as requesting and receiving details of the liquidation. Even though the general meeting of shareholders may decide to put the bank into a self-liquidation, this cannot be started without the FCMC’s consent. This means the FCMC will evaluate the self-liquidation plan and check that the credit institution is able to pay off its debts as they fall due.
The general meeting’s resolution to put the bank into a self-liquidation cannot fend off a liquidation by court order or the bankruptcy procedure. A court order will deprive the shareholders of any say in liquidation proceedings. However, if a credit institution’s licence is cancelled or if a court order puts it into liquidation, the general meeting has no power to resolve on a self-liquidation. Also, the general meeting cannot decide to stop or suspend the resolution on a self-liquidation.
A liquidation by court order will be run by a liquidator recommended by the FCMC: an attorney at law, a certified auditor, or an entity that mainly provides audit services. A self-liquidation is carried out by a liquidator elected by the general meeting. A petition for self-liquidation filed with the FCMC should name a possible liquidator.
Unlike a liquidation by court order, a liquidator elected by the general meeting is not governed by the liquidator remuneration rules. In a liquidation by court order, a meeting of creditors and the liquidator may agree on his remuneration.
The Credit Institutions Act provides that a liquidator appointed by the court requires civil liability insurance for cases where his acts or omissions harm creditors or any other person, but this requirement does not apply to a liquidator elected by the general meeting. Of course, the liquidator is still responsible for his acts and omissions since section 163(1) of the Credit Institutions Act makes him liable for any loss caused to creditors through his fault.
In a self-liquidation the liquidator will decide to complete it and submit his decision to the FCMC. In a liquidation by court order, the court will decide to complete the liquidation after the liquidator has submitted a report on the entire period of liquidation to the court and the FCMC.
Regardless of the way a credit institution is wound up, the liquidator is essentially subject to the same requirements for independence and objectivity. However, a liquidator appointed by the court additionally attracts some broader statutory requirements that do not apply to a liquidator elected by the general meeting.