Rehabilitation in the securities sector in the event of critical financial crisis

INVESTOR protection is a top priority for the Securities and Exchange Regulator of Cambodia (SERC), with robust laws and regulations established to promote efficiency, transparency and accountability in the Kingdom’s securities market, and foster trust among investors.

Before issuing licenses or approval for companies and individuals operating in the sector, SERC meticulously reviews applications against stringent requirements, including financial stability, human resources and business operating systems.

Prior to receiving a licence or accreditation and/or approval to provide services in the securities sector or approval to issue stocks or bonds, SERC meticulously reviews whether an application complies with the necessary requirements, including financial stability, human resources and business operating systems.

SERC actively monitors the business operations and financial health of companies in the sector, with prompt action taken through rehabilitation or liquidation proceedings in the event of a financial crisis.

Anukret No. 24 ANKR.BK on “Rehabilitation and Liquidation in the Securities Sector”, dated February 26, 2018, outlines the procedures for these processes, offering a structured approach to rescuing struggling entities or, when necessary, dissolve them in a transparent and responsible manner.

What is rehabilitation?

Rehabilitation is a mechanism designed to rescue and revitalise companies facing severe financial difficulties.

It allows such entities to overcome challenging situations stemming from wars, natural disasters, or economic downturns, such as the recent Covid-19 pandemic, which can lead to insolvency – the inability to repay debts.

Creditors often seek legal action against insolvent companies, demanding liquidation, while rehabilitation offers an alternative, providing a chance for recovery and debt repayment.

It is important to note that rehabilitation isn’t a magic bullet – while effective in many cases, it doesn’t guarantee success in every situation.

Some companies may face temporary financial hardship caused by factors such as client delay or non-liquid assets like land, not necessarily insolvency. In such cases, rehabilitation provides additional time and guidance to manage debts and potentially resume normal operations.

There are a few situations whereby a company might struggle to settle their debts without being technically insolvent.

For example, it may be experiencing temporary financial difficulties due to delayed client payments or having non-liquid assets like land or buildings.

Additionally, they might have the right to collect on a significant amount of debt that is past the statute of limitations.

The rehabilitation process, which allows companies to receive additional time to collect money for debt settlement, operates transparently under the supervision of an “Interim Governor” appointed by SERC.

This individual works closely with creditors and the company to implement a recovery plan.

The rehabilitation process can be initiated either by SERC directly or upon request from qualified parties, such as a company manager or a majority shareholder, as outlined in the Anukret.

Triggering events for rehabilitation include:

t 5IF DPNQBOZ PS JTTVFS NJHIU CF unable to meet the minimum capital requirements set by the SERC.

t 3JTL GBDUPST TFU PVU JO UIF SJTL management plan required by the SERC identified as exceeding acceptable levels.

t 4JHOT PG QPUFOUJBM JOTPMWFODZ

t 0UIFS TJUVBUJPOT EFFNFE DSJUJDBM by SERC.

Should it be deemed that rehabilitation is necessary, the Director General of the SERC will appoint an interim governor to manage and supervise the company or issuer during the rehabilitation period.

This involves exercising rights and obligations as set out in the Anukret on “Rehabilitation and Liquidation in the Securities Sector”.

Should the Interim Governor determine insolvency, they will take further necessary steps, including transferring assets to other entities and initiating court proceedings for liquidation, if required.

Reference: Anukret No. 24 ANKR. BK dated on February 26, 2018, on Rehabilitation and liquidation in Securities Sector.

Prepared by:Securities and Exchange Regulator of Cambodia Legal Affairs Department.

Email: legal@serc.gov.kh. Phone: 023 855 611.