Technical Standards for the Holding and Liquidation of Extraordinary Assets of Reciprocal Guarantee Companies

NRP-33
EXTRAORDINARY ASSETS OF RECIPROCAL GUARANTEE COMPANIES Approval: 11/04/2022 Validity: 3/05/2022

THE COMMITTEE OF STANDARDS OF THE CENTRAL BANK OF RESERVE OF EL SALVADOR,

CONSIDERING:
I. That Article 60 of the Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises establishes that Guarantee Societies may acquire movable property, real estate, and other rights of any kind when such acquisition is made in cases where, lacking other means to make payment, they must accept them in total or partial cancellation of amounts resulting from honored guarantees and when they are adjudicated to them by virtue of a judicial action promoted against their debtors. The assets thus acquired are considered extraordinary assets.

II. That Article 61, first paragraph of the Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises establishes that Guarantee Societies must liquidate their extraordinary assets within a period of two years from the date of their acquisition.

III. That Article 61, second paragraph of the Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises establishes that Guarantee Societies are obligated to provision as a loss in their accounting and to sell at public auction their extraordinary assets within the three years following the date on which the holding period for them expired.

IV. That Article 61, sixth paragraph of the Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises establishes that Guarantee Societies may conserve or donate their extraordinary assets provided these are destined for works that constitute a benefit to the community, or for cultural purposes, or to conserve them for their own use or for the welfare of their personnel, with prior authorization from the Superintendence of the Financial System.

V. That Article 3, second paragraph, letter b) of the Law of Supervision and Regulation of the Financial System establishes that the Superintendence of the Financial System is responsible for authorizing the constitution, functioning, start of operations, suspension of operations, modification, revocation of authorization, closure, and other acts of the members of the financial system, in accordance with the legal, regulatory, or technical normative provisions established regarding them.

VI. That Article 7, letter h) of the Law of Supervision and Regulation of the Financial System establishes that the Superintendence of the Financial System is responsible for the supervision of Reciprocal Guarantee Societies and their local reinsurance companies.

VII. That Article 101, fourth paragraph of the Law of Supervision and Regulation of the Financial System establishes that the powers to approve, modify, and repeal technical norms that must be complied with by the members of the financial system and other supervised entities, and which were attributed to the Superintendences or to the Directing Councils of the Superintendences whose organic laws are repealed by said Law, are transferred to the Central Bank.

THEREFORE, by virtue of the normative powers conferred upon it by Article 99 of the Law of Supervision and Regulation of the Financial System, AGREES to issue the following:

TECHNICAL STANDARDS FOR THE HOLDING AND LIQUIDATION OF EXTRAORDINARY ASSETS OF RECIPROCAL GUARANTEE COMPANIES

CHAPTER I
OBJECT, SUBJECTS, AND TERMS

Object
Art. 1.- The object of these Standards is to establish the criteria for the conservation, authorization of extensions, and liquidation of the extraordinary assets of Reciprocal Guarantee Societies.

Subjects
Art. 2.- The subjects obligated to comply with the provisions established in these Standards are the Reciprocal Guarantee Societies mentioned in the Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises.

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Extraordinary Assets: Movable property, real estate, and other rights of any kind that Guarantee Societies have acquired when, lacking other means to make payment, they must accept them in total or partial cancellation of amounts resulting from honored guarantees and when they are adjudicated to them by virtue of a judicial action promoted against their debtors; b) Central Bank: Central Bank of Reserve of El Salvador; c) Law: Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises; d) Societies or Guarantee Society: The Reciprocal Guarantee Societies mentioned in the Law; and e) Superintendence: Superintendence of the Financial System.

CHAPTER II
HOLDING PERIOD

Art. 4.- The extraordinary assets of Guarantee Societies must be liquidated within a period of two years, from their date of acquisition. In duly justified cases, this period may be extended by up to one hundred and eighty days.

Extraordinary assets that have completed the two-year period since their acquisition or their extension, without having been liquidated, must be provisioned as a loss in the accounting of the Guarantee Society, for their total value.

CHAPTER III
ON THE EXTENSION FOR THE HOLDING OF EXTRAORDINARY ASSETS

Application for extension for the holding of extraordinary assets Art. 5.- Guarantee Societies must submit to the Superintendence an application to obtain an extension for the holding of the extraordinary asset, at least thirty days in advance of the expiration date of the two-year holding period established by Law. The application must contain:
a) Complete description of the property; b) Date of acquisition; c) Acquisition cost, value according to accounting records, and sale price determined by the Guarantee Society; d) Detail of the sales efforts carried out in the last twelve months, duly proven; e) Names of interested parties and the prices offered in the last twelve months; f) Reasons justifying the extension, duly documented; and g) Explanation regarding whether there is a variation between the sale price of the related real estate and its market value.

The application must be accompanied by the updated report on the legal status of the real estate and documentation demonstrating possession of the real estate (deed of transfer in payment or adjudication act).

The application and documentation may be submitted through the means made available by the Superintendence, which may be electronic. In any case, the period referred to in the first paragraph of Article 7 of these Standards will begin to run from the next business day after the application has been submitted.

Art. 6.- The scope of the extension for the holding of the extraordinary asset referred to in the first paragraph of Article 4 of these Standards will depend on the causes that hinder the commercialization of the asset, according to the justifications of the case as established in letter f) of Article 5 of these Standards.

Procedure for the authorization of extension for the holding of the extraordinary asset Art. 7.- Upon receipt of the application for extension for the holding of the extraordinary asset, according to what is established in Article 5 of these Standards, the Superintendence will proceed to verify compliance with the requirements defined by Law and these Standards, having a period of up to twenty business days to authorize or deny the application.

If the application is not accompanied by the complete and duly formatted information detailed in Article 5 of these Standards, the Superintendence, due to the lack of necessary requirements, may require the Guarantee Society to present the missing documents within a period of ten business days counted from the day following the notification, a period that may be extended at the request of the interested Guarantee Society when there are reasons justifying it.

The Superintendence in the same notice will indicate to the Guarantee Society interested in the extension for the holding of the extraordinary asset that, if they do not complete the information within the aforementioned period, it will proceed without further procedure to archive the application, leaving them free to present a new application.

If after the analysis of the documentation presented according to Article 5 of these Standards, the Superintendence has observations or when the documentation or information presented is not sufficient to establish the facts or information intended to be accredited, the Superintendence will notify the Guarantee Society to remedy the deficiencies communicated or present additional documentation or information requested.

The Guarantee Society will have a maximum period of ten business days counted from the day following the notification, to resolve the observations or present the additional information required by the Superintendence.

The Superintendence may, through a reasoned resolution, extend by up to another ten business days, the period indicated in the previous paragraph, when the nature of the observations or deficiencies notified requires it.

Extension period to resolve observations
Art. 8.- The Guarantee Society interested in requesting an extension for the holding of the extraordinary asset may submit to the Superintendence an application for an extension of the period indicated in the fifth paragraph of Article 7 of these Standards, before the expiration of said period, expressing the grounds on which it is based and proposing, if applicable, the relevant proof.

The extension period may not exceed ten business days and will begin from the next business day after the expiration date of the original period.

Suspension of the period
Art. 9.- The period of twenty business days indicated in the first paragraph of Article 7 of these Standards will be suspended for the days that elapse between the notification of the requirement to complete information or documentation referred to in the second and fifth paragraphs of said article, until the observations required by the Superintendence are remedied.

Resolution
Art. 10.- Once the complete and duly formatted documentation is presented, the Superintendence will respond to the application of the Guarantee Society through a resolution.

The Superintendence will proceed to notify the resolution in which it authorizes or denies the application for extension for the holding of the extraordinary asset, within a maximum period of three business days from the date of issuance.

Art. 11.- If the resolution to the extension application is negative or if the expiration period of the extension has expired without the property having been sold, the Guarantee Society will be obligated to provision it as a loss in its accounting and to sell it at public auction within the three years following the date on which the holding period expired.

CHAPTER IV
PUBLIC AUCTION SALE

Art. 12.- The Guarantee Society that has not sold its extraordinary asset in any of the periods indicated in the second paragraph of Article 4 of these Standards must sell it at public auction within the three years following the date on which the period expired. The first auction will be held within the first three months after the holding period has expired. In case no bidders appear, the auctions will be repeated at least every three months, or every six months in the case of real estate, taking as a basis for these new auctions a price that will be lower each time by a percentage amount of up to twenty percent.

Prior to the auctions, a notice must be published in two printed media of national circulation or another digital publication platform with greater or equal coverage or on its website, in accordance with what is established in the current legal framework, in which the place, day, and time in which they will be held, the value that will serve as a basis for them, the sale conditions, and a brief description of the property and its location, if it is real estate, will be clearly expressed. Such publication must be made at least fifteen days in advance of the date of the auction.

Art. 13.- The value that will serve as a basis to start the auction will be the real value of the assets, as estimated by the institution itself.

Art. 14.- The Guarantee Society must communicate to the Superintendence, at least ten business days in advance, the date, time, and place where the public auction will take place. The aforementioned communication must contain:
a) Copies or evidence of the publication of the notice referred to in Article 12 of these Standards; b) Description of the property or properties to be auctioned; c) Base price of the auction and value according to accounting records; d) Name of the ex-owner of the property; and e) Detail of previous auctions, if any.

The process must be carried out in the presence of a delegate from Internal Audit and another representing the Legal area. When the Superintendence deems it convenient, it will designate one or more delegates to supervise such event.

At the end of the event, an act will be drawn up stating the place, day, time, and other aspects related to the auction, indicating the general details of the buyer. The act will be signed by the representatives of the Guarantee Society and the buyer. The delegates of Internal Audit of the Guarantee Society and of the Superintendence will only prepare a report attaching a copy of the act.

Within the five business days following, the Guarantee Society must send to the Superintendence, a certified copy of the act and the internal audit report.

Art. 15.- If after an auction has been held, but before three months have elapsed, or six in the case of real estate, a buyer appears offering a sum equal to or greater than the value that served as a basis for said auction, the Guarantee Society may sell the property without further procedure at the price of the offer.

Art. 16.- In case the Superintendence detects irregularities in the auction process, it may require the repetition of said process, provided that the respective movable or immovable property has not been sold.

In case the auction is unsuccessful for any cause, an act must also be drawn up in which the incidents of the case will be indicated and which must be signed by the representatives of the Guarantee Society, except the internal audit delegates.

CHAPTER V
ON THE CONSERVATION OR DONATION OF EXTRAORDINARY ASSETS

Application for conservation or donation of extraordinary assets Art. 17.- In case a Guarantee Society wishes to conserve an extraordinary asset for its own use or for the welfare of its personnel, or to donate it, provided it is destined for cultural purposes or community benefit, it must submit an application to the Superintendence, at least thirty days before the two-year holding period or its extension expires.

The application for authorization to conserve an extraordinary asset for its own use or for the welfare of its personnel must be accompanied by the following documentation:
a) Certified photocopy by Notary, of the agreement taken by the Board of Directors or equivalent body for the approval of the procedure, signed by its Secretary; in said agreement, the use to be given to the extraordinary asset must be included; b) Inventory of the extraordinary assets of the Guarantee Society as of the date of the application; c) Investment budget to be carried out for the conditioning of the extraordinary asset as fixed asset, and the costs incurred for its maintenance; d) Updated valuation report of the extraordinary asset as of the date of the application, carried out by a qualified appraiser registered in the register of the Superintendence; and e) Project of the accounting entry to be made for the liquidation of the extraordinary asset.

In the case of the donation of an extraordinary asset, the application must be accompanied by the documentation established in letters a), b), d), and e) of this article.

The application and documentation may be submitted through the means made available by the Superintendence, which may be electronic. In any case, the period referred to in Article 18 of these Standards will begin to run from the next business day after the application has been submitted.

Procedure for authorization for the conservation or donation of extraordinary assets Art. 18.- Upon receipt of the application for the conservation or donation of an extraordinary asset, according to what is established in Article 17 of these Standards, the Superintendence will proceed to verify compliance with the requirements defined by Law and these Standards, having a period of up to twenty business days, following the same procedure established in Articles 7, 8, 9, and 10 of these Standards.

Art. 19.- If the requested is resolved favorably, the transfer of the property in accounting must be proceeded, crediting the account in which the extraordinary asset was accounted for, to the account of assets for use by the institution or an expense account if it is a donation, as appropriate, and in accordance with the Accounting Manual for Reciprocal Guarantee Societies.

CHAPTER VI
OTHER PROVISIONS AND VALIDITY

Sanctions
Art. 20.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is established in the Law of Supervision and Regulation of the Financial System.

Repeal
Art. 21.- These Standards repeal the Standards for the Holding and Liquidation of Extraordinary Assets of Reciprocal Guarantee Societies (NPSGR4-01), approved in Session CD-42/2003 of October 8, 2003, approved by the Directing Council of the Superintendence of the Financial System, whose Organic Law was repealed by Legislative Decree No. 592 containing the Law of Supervision and Regulation of the Financial System, published in Official Diary No. 23, Volume No. 390, dated February 2, 2011.

Transitory
Art. 22.- Applications submitted in accordance with what is established in the [Standards for the] Holding and Liquidation of Extraordinary Assets of Reciprocal Guarantee Societies (NPSGR4-01), which were in process at the time these Standards enter into force, will continue and conclude in accordance with the regulations under which they began.

Unforeseen Aspects
Art. 23.- Unforeseen aspects in regulatory matters in these Standards will be resolved by the Central Bank through its Committee of Standards.

Validity
Art. 24.- These Standards will enter into force from the third day of May of two thousand twenty-two.