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On 3 March 2005, the Financial Supervisory Commission announced that it had finished drafting amendments to the Financial Institutions Merger Act (FIMA), and the draft has been submitted to the Executive Yuan for approval.
The main points of the proposed amendments are as follows:
In response to the entry into force of the Ag-ricultural Finance Act, credit departments of farmers' and fishermen's associations are ex-cluded from the scope of application of the FIMA. Mergers in respect of the credit de-partments of farmers' and/or fishermen's as-sociations will be regulated by the Farmers' Association Act and Fishermen's Association Act in the future, which are currently under drafting.
The consideration to be given to the share-holders of a financial institution merging into another one would not be limited to shares of the surviving institution, but may also include shares of another financial institution, cash, or other assets in the future. In addition, if a trust for the single purpose of repaying indebted-ness of the absorbed institution has been set up, or it has been proved that the merger would have no adverse impact on the rights of creditors and of the absorbed institution, then the merger could be asserted against such creditors and holders of beneficiary certifi-cates issued by the absorbed institution, etc.
With respect to the sales of non-performing loans (NPLs) made by financial institutions from1 July 2005, the seller will no longer en-joy a five-year period over which it may am-ortize losses realized by such a sale. In addi-tion, the current provisions of the FIMA under which (1) an asset management company (AMC) is not subject to the restrictions of bankruptcy or reorganization procedures that are initiated after its acquisition of NPLs or the commencement of compulsory enforcement procedures filed by the selling financial insti-tution with regard to such loans; and (2) the court must appoint the AMC as the bank-ruptcy administrator or reorganizer of a com-pany declared bankruptcy or under reorgani-zation if the AMC is the largest creditor of such company will also cease to apply to NPLs sold from 1 July 2005.
If the above amendments are passed by the Legislative Yuan, they will have a substantial impact on the way in which mergers between financial institutions are undertaken in Taiwan, and on the development of the NPLs market.
