CRITICS did not doubt the need for such special legislation as the Pengurusan Danaharta Nasional Berhad Act 1998, which became law on Sept 1, 1998.
However, the nature and width of powers contained in the act gave rise to concerns over its intended use and potential for abuse.
Parliament passed the Danaharta Act and gave Danaharta the special powers it needed in the difficult economic circumstances prevailing then: the depreciation of the ringgit, the decline in the stock market, the threefold increase in non-performing loans (NPLs), and the contraction of the economy.
Throughout the world, lawmakers have given national asset management companies (AMCs), like Danaharta, special powers to help them achieve their mission and overcome the difficult circumstances in which they operate.
They include powers of compulsory acquisition, to change shareholdings and substitute existing boards for new, as well as powers to repudiate contracts, transfer assets and liquidate companies.
Like all AMC laws, the special powers in the Danaharta Act are intended to ensure that it can operate quickly and efficiently. This is because Danaharta is government-funded and so the faster it can act, the better the recovery values from NPLs and the lower the cost to taxpayers.
The concern that the Danaharta Act was draconian may be less a reflection of the type of powers conferred on Danaharta and more a reflection of the fact the act excludes the courts from its processes.
This is not unprecedented as even under general law, the exclusion of the courts is not an entirely alien concept.
It had been recognised that the exclusion of the courts was one of the reasons Danaharta progressed so quickly.
What is important in such a situation is that effective checks and balances exist to prevent an abuse of the special powers conferred on Danaharta. Some of them are:
·Although the Danaharta Act facilitates the acquisition of NPLs, acquisitions are done on a willing seller, willing buyer basis banks are free to sell or keep their NPLs.
·The act also protects Danaharta against unknown claims in relation to acquired NPLs. However, the claimant continues to have recourse to the selling bank or original lending bank.
·The establishment of an oversight committee to oversee, approve and terminate appointments of special administrators.
·Danaharta's preference to sell foreclosed property collateral through an open tender process.
Danaharta has also been structured to facilitate transparency and minimise the opportunity for abuse. An example is the composition of its nine-member board: setheven from the private sector and two representing the government.
Another is its internal policies and procedures, which do not allow any one person to make decisions on loans restructuring or sales of assets. These structures and processes have helped Danaharta fend off legal action and challenges.
Commentators have recognised the Danaharta Act and the special powers given to Danaharta as a key factor contributing to its success so far.
The Danaharta Act must, therefore, be seen in the context of the type of institution that Danaharta is an AMC with a specific mission and a finite life.