Section 42E: Resolution powers

42E. Resolution powers.__ (1) Where an order is made under section 42D, the State Bank shall have full control over the affairs of the banking company and may exercise one or more of the following powers, separately or in combination, to achieve its Resolution objectives: (a) remove directors or chief executive, by whatever name called, or other officer of a banking company, not being lower in rank than a branch manager; (b) supersede the Board of Directors of the banking company: Provided that all powers of the general meeting of members, the Board of Directors, chief executive officer, or any other officer shall be vested with the State Bank, and the State Bank in this capacity may require any director or officer of the banking company to carry out any task it specifies; (c) appoint one or more, officials of the State Bank or, persons meeting its fit and proper test as an administrator for management and operation of the banking company under Resolution. All persons appointed under this clause shall perform their powers and duties under the instructions issued by, and be entitled to such remuneration as may be specified by, the State Bank; (d) issue an order of moratorium in respect of a banking company under section 42F; (e) carry out reconstruction or amalgamation of the banking company under section 42G; (f) reduce or extinguish the interest or rights which the members, depositors and other creditors have in or against the banking company, to such extent as the State Bank consulers necessary; (g) transfer in full or in part the business, assets and liabilities of the banking company to a bridge bank under section 42H; (h) cancel a license granted to a banking company under section 27; or (i) make an application to the High Court for the winding up of the banking company under section 49. (2) The State Bank may, while exercising any of the powers referred to in sub-section (1) or otherwise, take one or more of the following actions__ (a) engage at the expense of the banking company under Resolution; independent attorneys, accountants, auditors, valuation experts and consultants, by whatever name called, on such terms and conditions as may be specified by the State Bank: Provided that, to ensure timely and orderly Resolution, the provisions of any law related to public procurement of services, for the time being in force, shall not apply to hiring of various service providers under this sub-section. (b) without prejudice to the generality of clause (a), direct or arrange an independent valuation of the assets and liabilities or shares of the banking company for the application of sub-section (1) or, as the case may be, for the application of sub-section (7) or for any other purpose as may be deemed necessary by the State Bank: Provided that__ (i) such a valuation shall be conducted by a valuator who shall be of good repute and has international experience in the valuation or auditing or has affiliations with audit or valuation firms that have such international experience; (ii) such a valuation shall be carried out based on conservative assumptions and in accordance with the international valuation standards with due regard to specificities of banking companies, including regulatory capital requirements. Such valuation, if carried out for the Resolution purposes, shall not assume any potential future provision of public funding or the State Bank financing under section 17G of the State Bank of Pakistan Act, 1956 (XXXIII of 1956); (iii) the State Bank may specify the general procedures and methodology, and other terms and conditions for valuations, having regard to the purpose of the valuation; and (iv) if conducting an independent valuation is not possible for Resolution purposes, including due to the urgency of Resolution, the State Bank itself may conduct a provisional valuation; and exercise any Resolution power based on such valuation. The State Bank shall as soon as practicable thereafter cause an independent valuation to be conducted. (c) require any person to continue provision of such services as are necessary for continuity of critical functions of the banking company under Resolution, or a transferee bank including the bridge bank, and such service provider shall continue these services under the terms and conditions existing prior to Resolution; (d) require the banking company under Resolution to provide necessary services to a transferee bank including the bridge bank for such time period as may be specified by the State Bank; (e) upon a request of transferee bank, transfer assets and liabilities back to the transferring bank, within a period specified during the time of transfer or in case such assets or liabilities do not meet the criteria specified, during the transfer; (f) without prejudice to the banking company's right to terminate contracts as per the contractual terms, rescind contracts where the State Bank considers that the performance of outstanding obligations would be detrimental to the Resolution objectives: Provided that without prejudice to the provisions of this section on financial contracts, the counterparties of the banking company concerned may not terminate, modify, or accelerate the rights and obligations under a contract solely because of an order made under section 42D or the exercise of any powers under section 42E by the State Bank; or (g) temporarily suspend the right of the banking companies' counterparties to early terminate or modify or accelerate financial contracts, to which the banking company under Resolution is a party, where such rights arise due to an order made under section 42D or due to the exercise, of any resolution powers: Provided that the suspension period shall not exceed two business days, and substantive obligations under the contract shall continue to be performed. (3) Unless provided otherwise in this ordinance, during the Resolution of a banking company, losses, if any, shall be imposed in the reverse order of the liquidation claims as provided in section 58. (4) Unless otherwise strictly necessary to achieve the Resolution objectives, the State Bank shall avoid treating a liability and assets securing such liability separately during the transfer of assets and liabilities, or transferring part of the rights and liabilities that are protected under a financial contract. (5) For the application of this section, the State Bank shall specify the financial contracts. (6) Subject to sub-section (7), the State Bank may treat one or more creditors of the same class differently, if this is necessary to avoid a contagion in the financial system or a destruction of value for creditors in general, or otherwise, it would not be possible to implement the relevant Resolution action within a reasonable timeframe. (7) A shareholder or creditor of the banking company who, as a result of the exercise of Resolution powers, recovered less than what he would have recovered in case of a winding up order under this Ordinance, may be compensated for the difference, only where the State Bank determines such difference based on an independent valuation caused under sub-section (2). Such valuation shall presume that the banking company concerned would be placed under winding up immediately before the issuance of an order as per section 42D. The valuation of assets shall be based on liquidation values. Any value created or preserved in the banking company as a result of any public support or financing under section 17G of the State Bank of Pakistan Act, 1956 (XXXIII of 1956), shall be deducted in the calculation of difference. Any such compensation shall be paid by the Deposit Protection Corporation under clause (c) of sub-section (1) of section 22C of the Deposit Protection Corporation Act, 2016 (XXXVII of 2016) or otherwise, from funds obtained under section 42I. (8) Powers under this section shall not be subject to the approval or consent of the shareholders, debtors, creditors or any counterparty of the banking company or that of the bridge bank. (9) The protection and indemnification provided in section 94 shall also apply to any person appointed, engaged or directed by the State Bank in pursuance of the powers conferred on it under this section and section 42H. (10) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other law or contract for the time being in force.

Effective date: 1962-06-07

Related sections