Norm for the Disposition of Assets of Banks and Financial Companies in Liquidation

Resolution No. CD-SIBOIF-658-1-DIC9-2010
Dated December 9, 2010

NORM FOR THE DISPOSITION OF ASSETS OF BANKS AND FINANCIAL COMPANIES IN LIQUIDATION

The Board of Directors of the Superintendence of Banks and Other Financial Institutions,

CONSIDERING

I

That Article 15 of Law 561, General Law of Banks, Non-Bank Financial Institutions and Financial Groups, published in La Gaceta, Official Gazette No. 232, of November 30, 2005, contemplates the figure of voluntary early dissolution of a bank, establishing that prior authorization from the Superintendent of Banks will be required and the respective liquidation will be carried out in accordance with what is provided for that purpose in the aforementioned Law 561 for the forced liquidation of entities that are not members of the Deposit Guarantee System, insofar as it is applicable.

II

That according to the foregoing, Article 102, numeral 9) of the aforementioned Law 561 is applicable, which establishes that the duties of the liquidator are: "...value the assets of the institution and proceed to their sale, through the procedures established by the Board of Directors of the Superintendence in accordance with a norm of general application. These norms must contain expedited procedures for the sale of assets."

III

That based on the powers established in Article 3, numerals 6) and 13), and Article 10, clause 1) of Law No. 316, Law of the Superintendence of Banks and Other Financial Institutions and its reforms.

In exercise of its powers

HAS ISSUED

The following:

Resolution No. CD-SIBOIF-658-1-DIC9-2010
NORM FOR THE DISPOSITION OF ASSETS OF BANKS AND FINANCIAL COMPANIES IN LIQUIDATION

CHAPTER I
CONCEPTS, OBJECT AND SCOPE

Article 1. Concepts.- For the purposes of this norm, the terms indicated in this article, both in uppercase and lowercase, singular or plural, shall have the following meanings:

a) Board of Directors: Board of Directors of the Superintendence of Banks and Other Financial Institutions.

b) Voluntary Early Dissolution: Resolution alternative referred to in Article 15 of the General Law of Banks.

c) Financial Institution: Banks and financial companies that, in accordance with the law, can capture public deposits, supervised by the Superintendence of Banks and Other Financial Institutions, subject to forced liquidation processes.

d) General Law of Banks: Law 561, General Law of Banks, Non-Bank Financial Institutions and Financial Groups, published in the Official Gazette No. 232, of November 30, 2005.

e) Forced Liquidation: Situation or state of a financial institution declared by a judge at the request of the Superintendent, by virtue of the decision of its Shareholders' Assembly to voluntarily dissolve the company.

f) Liquidator or Liquidating Board: Natural person or collegiate body referred to in Article 98 of the General Law of Banks.

g) Liquidation Process: Process by which the balance sheet of a financial institution is liquidated.

h) Superintendence: Superintendence of Banks and Other Financial Institutions.

i) Superintendent: Superintendent of Banks and Other Financial Institutions.

j) Book Value: In the case of fixed assets, it is the acquisition value plus the value of improvements made, minus the accumulated depreciation as of the cut-off date of the previous month. In the case of adjudicated assets, it is the initial registration value of the asset, minus the provision recorded as of the cut-off date of the previous month, as established in the regulations governing the matter on credit risk management.

Article 2. Object and Scope.- This Norm aims to establish the general guidelines to be followed by the liquidator for the disposition of assets of financial institutions subject to forced liquidation processes derived from voluntary early dissolutions.

Financial institutions that meet the following conditions in advance may request authorization from the Superintendent to submit to the voluntary early dissolution process:

a) That their liabilities do not reflect public deposits; and

b) That they have constituted one hundred percent (100%) of reserves for the payment of their labor liabilities and pending contributions to the Superintendence, the Deposit Guarantee Fund, and the Central Bank of Nicaragua.

CHAPTER II
VALUATION OF ASSETS

Article 3. Objective of the valuation.- The main objective of the valuation is to establish an estimated value of the assets of the financial institution subject to liquidation. The report on such valuation shall be used by the liquidator to establish the sale price of the assets to be liquidated.

Article 4. Assets excluded from appraisal.- For the purposes of this Norm, the following assets shall be excluded from appraisal:

a) Assets whose value is less than the equivalent in national currency to five thousand United States dollars (US$5,000.00);

b) Used assets whose last appraisal is less than twelve (12) months old; and

c) Adjudicated assets whose last appraisal is less than thirty-six (36) months old.

In the case of loan portfolios, investment portfolios, and accounts receivable, these shall be valued in accordance with the regulations governing the matter on credit risk management and the applicable accounting regulations on valuation.

Article 5. Hiring of appraisers. The liquidator shall hire appraisers registered in the registry kept by the Superintendence for this purpose, in order to carry out the appraisal of the assets to be sold. Such appraisal shall comply with the requirements provided for in the regulations governing the matter on appraisers who provide services to financial institutions.

CHAPTER III
SALE OF REAL ESTATE

Article 6. Sale of real estate.- For the sale of real estate owned by the financial institution located both in national territory and in foreign territory, the liquidator shall comply with the provisions of this chapter; being able to postpone the sale of those assets that are deemed necessary for the liquidation process. Such sales must be made in cash.

As sales develop, an updated record of assets pending realization shall be maintained. This control will be periodically contrasted with the physical assets.

Article 7. Asset Register.- The liquidator shall order the preparation of a register of the real estate owned by the financial institution, indicating the data that allow the respective identification of them, such as: full address, land area, built area, type of property (residential, commercial premises, office premises, industrial premises, among others), registration data, book value, realization value according to appraisal, sale price, status of the same, and any other relevant data.

Article 8. Sale of real estate by public auction. The sale of real estate may be carried out through public auction, which shall be subject to the following guidelines:

a) The call notice shall be published in a newspaper of national circulation, without prejudice to its publication in La Gaceta, Official Gazette, containing the main data identifying each property and its base price.

b) The base sale price of each asset to be auctioned shall be set by the liquidator seeking to obtain the maximum benefit for the financial institution. To this effect, the following guidelines shall be followed:

1. For used assets of the financial institution: The base price for sale shall be the greater of the realization value according to appraisal and the book value.

2. For assets adjudicated in favor of the financial institution before the start of the liquidation process: The base price for sale shall be the greater of the realization value according to appraisal and the book value of the adjudicated asset.

3. For assets adjudicated during the liquidation process: The base price for sale shall be the greater of the adjudication value, plus the expenses incurred by the asset in terms of taxes, deed preparation, among others, and the realization value according to appraisal.

c) Purchase offers must be made on the total area of each offered real estate property.

d) If there are no bidders in the auction, the liquidator may hold subsequent calls to achieve the sale of the assets, being able to apply discounts in each auction of up to twenty-five percent (25%) of the initial base price, reaching up to fifty percent (50%) of the latter. The time between one auction and another shall not be less than eight (8) days.

e) Purchase offers must be submitted in a sealed envelope, which shall be opened in the presence of a public notary and the interested parties present, who shall sign an attendance sheet before the start of the auction act together with the liquidator.

f) The auction act shall be presided over by the liquidator, who shall sign the adjudication act together with the adjudicatee.

g) The adjudicatee must pay the amount of their offer within a maximum of ten (10) business days following the notification of the adjudication of the real estate. Once this amount is paid, the transmission of ownership in their favor shall be formalized, relating the respective adjudication act in the public deed of sale. If by the end of the aforementioned period the interested party has not paid the amount of their offer, the liquidator may adjudicate the asset to the second best offer.

Article 9. Direct sale of real estate.- Real estate may be sold directly to interested parties, in which case, the reference sale price shall be set by the liquidator according to the criteria established in letter b) of Article 8 above, being able to discount up to ten percent (10%) of said price.

In the event that there are several interested parties in the same real estate property, and among them is its former owner, the latter shall have the option to surpass the highest purchase offer presented.

Article 10. Exceptional cases for the sale of real estate.- Exceptionally, the sale prices referred to in Articles 8 and 9 of this Norm may be reduced by the liquidator through a reasoned resolution when the condition of the asset makes its sale difficult due to reasons of deterioration, surveillance costs, maintenance, geographic location, ownership, possession, among others.

Article 11. Hiring of third parties for the sale of real estate.- The liquidator may hire the services of any natural or legal person dedicated to the real estate business to facilitate the sale of real estate, under the following conditions:

a) It may only do so for direct sales and not for public auction processes;

b) It shall not grant exclusive option to any real estate agent for any real estate property;

c) The professional service or commission to be paid shall be agreed upon by the parties in accordance with what is established in the law regulating the matter on real estate brokerage.

CHAPTER IV
SALE OF MOVABLE PROPERTY

Article 12. Sale of movable property.- The liquidator shall sell the movable property of the financial institution under the best conditions allowed by the market, being able to postpone the sale of those assets necessary for its use or consumption during the liquidation process. Such sales must be made in cash.

As sales develop, an updated record of assets pending realization shall be maintained. This control will be periodically contrasted with the physical assets.

Article 13. Direct sale of movable property.- The liquidator may sell directly to interested parties the movable property subject to liquidation in accordance with the following conditions:

a) The liquidator must offer the sale of the assets through a minimum of two notices in a written medium of national circulation, without prejudice to publishing it in La Gaceta, Official Gazette, indicating the quality and most relevant characteristics of them.

b) When it comes to movable property whose value exceeds the equivalent in national currency to five thousand United States dollars (US$5,000.00), the reference sale price of said assets shall be the greater of the book value and the realization value according to appraisal.

c) When it comes to movable property whose value is equal to or less than the equivalent in national currency to five thousand United States dollars (US$5,000.00), the reference sale price shall be the greater of the book value and the realization value equivalent to prices of similar movable goods in the market for the type of asset in question. In the case of assets that are in use and have not been entered into the fixed asset control system due to lack of knowledge of their origin and acquisition value, a recosting shall be carried out consisting of assigning a sale price based on the comparison made against other assets that are duly registered in the fixed asset control system and that have the same characteristics, such as: brand, model, among others.

Notwithstanding the foregoing, the liquidator through a reasoned resolution may reduce the reference sale prices when fifteen (15) days have passed after the last offer notice for sale and there have been no interested parties. Likewise, the liquidator through a reasoned resolution may sell assets that by their nature are subject to obsolescence, deterioration, disuse, uniqueness, total depreciation, among others; in this case, the sale price may be determined according to the judgment and criteria of the liquidator.

Article 14. Sale of movable property by public auction.- The liquidator may sell movable property through public auction for which it must follow the guidelines established in letters a), d), e), f) and g) of Article 8 of this norm. The base sale price shall be set by the liquidator according to the criteria established in letters b) and c) of Article 13 above.

Article 15. Sale of securities quoted on the Stock Exchange.- Securities quoted on the Stock Exchange owned by the financial institution shall not require any valuation, and their sale shall be carried out through the stock market mechanism, and at the times or through the lots that the liquidator considers most productive for the institution; provided that such sales are carried out under conditions of transparency and market competitiveness in accordance with the principles and regulations established in the law and regulations governing this matter.

CHAPTER V
SALE OF PORTFOLIO

Article 16. Sale of portfolio.- The liquidator may offer for sale, partially or totally, the credit portfolio of the financial institution, to interested natural or legal persons. This sale may be carried out through the mechanisms of public auction or direct sale and the payment shall be made in cash, always seeking the maximum benefit for the financial institution.

Article 17. Sale of portfolio by public auction.- The sale of portfolio by public auction shall be governed by the following guidelines:

a) It shall be subject to what is provided in letter a) of Article 8 of this Norm, the notice may be complemented with invitation letters to participate as bidders addressed to certain entities of a financial nature, with basic information about the credits to be auctioned.

b) Purchase offers must be submitted in a sealed envelope, which shall be opened in the presence of a public notary and the interested parties present, who shall sign an attendance sheet before the start of the auction act together with the liquidator.

c) The auction act shall be presided over by the liquidator, who shall sign the adjudication act together with the adjudicatee.

d) The adjudicatee must pay the amount of their offer within a maximum of ten (10) business days following the notification of the adjudication of the portfolio. Once this amount is paid, the assignment of the credit(s) in their favor shall be formalized, relating the respective adjudication act in the public deed of sale. If by the end of the aforementioned period the interested party has not paid the amount of their offer, the liquidator may adjudicate the portfolio to the second best offer.

Article 18. Supply of information.- The liquidator shall provide interested parties with the conditions of the auction and the complementary information folder; which shall include the current payment schedule for each credit, the guarantees constituted and their updated status, the classification of the credit, the degree of compliance of the debtor, the situation of being or not in judicial collection indicating the authority that is hearing the process and the status of the same, if applicable, and any other relevant and interesting data for the potential buyer.

Article 19. Determination of price.- For the determination of the base sale price or the reference price of the portfolio, the liquidator shall be subject to the following conditions:

a) In the case of credit portfolios that have real guarantees, the base sale price or reference price shall be the greater of the credit capital balance and the realization value according to appraisal of the asset given as guarantee. In the case of sanitized credit portfolios, said price shall be the realization value according to appraisal of the asset given as guarantee.

b) In the case of credit portfolios that do not have real guarantees, including sanitized credit portfolios, the base sale price or reference price shall be the one offered by the best bidder.

Article 20. Adjudication of portfolio.- In the event that the public auction is declared void due to lack of bidders, the liquidator may hold subsequent calls to achieve the sale of the portfolio, being able to apply discounts in each auction of ten percent (10%) of the initial base price, reaching up to twenty percent (20%) of the latter. The time between one auction and another shall not be less than eight (8) days.

Article 21. Direct sale of portfolio.- The liquidator may sell directly, partially or totally the credit portfolio, for which the reference sale price shall be set according to the criteria established in Article 19 of this Norm. The liquidator may apply discounts between ten percent (10%) and twenty percent (20%) of the reference sale price of the offered portfolio.

Article 22. Exception.- Without prejudice to what is established in this chapter, the liquidator through a reasoned resolution may reduce the base sale price or reference price of the portfolio when its sale is difficult due to the location or condition of the guarantee, the delinquency status of the credit, or the lack of interested parties.

CHAPTER VI
FINAL PROVISIONS

Article 23. Sale of assets in lots.- Without prejudice to the particularities established in this Norm for the sale of the different assets to be liquidated, the liquidator may group and sell in lots assets of the same nature.

Article 24. Conflicts of interest.- The liquidator or members of the liquidating board and the officials and employees of the Superintendence; as well as, the spouses or relatives of said persons up to the fourth degree of consanguinity or second degree of affinity shall not opt, either directly or through an intermediary, to acquire the assets to be liquidated. Nor may legal persons participate where the aforementioned persons maintain a significant link as provided in the General Law of Banks and in the regulations governing the matter on concentration limits.

Article 25. Submission of Report to the Superintendent.- Within the monthly report of their management, the liquidator must detail the asset sales carried out during the period, indicating the following minimum information:

a) Type of asset;

b) Inventory code or registration number;

c) Date of sale;

d) Name of the buyer;

e) Base sale price or reference price of the asset;

f) Initial value of the appraisal;

g) Final sale price;

h) Sales modality used.

Article 26. Repeal.- The Norm for the Disposition of Assets of Banks and Financial Companies in Liquidation, contained in Resolution No. CD-SIBOIF-646-1-SEP22-2010, dated September 22, 2010, published in La Gaceta, Official Gazette, No. 171 of October 07, 2010, is repealed.

Article 27. Validity.- This norm shall enter into force from its publication in La Gaceta, Official Gazette. (f) J. Rojas R. (f) V. Molina H. (f) Gabriel Pasos Lacayo (f) illegible (Silvio Moisés Casco Marenco) (f) F. Reyes B. (f) U. Cerna B.

URIEL CERNA BARQUERO
Secretary Board of Directors SIBOIF