Título IX. Regularizacion, suspension de operaciones y exclusion de activos y pasivos

When a bank or a financial company presents a capital deficiency it shall immediately inform the Superintendency of Banks thereof; if it fails to do so it shall be subject to the sanctions provided for in this Law, without prejudice to the application of other applicable legal provisions. Likewise, within the time limit of five days following the date of its report, it shall submit to said Superintendency, for its approval, a regularization plan.

In case the capital deficiency were determined by the Superintendency of Banks, the bank or the financial company shall submit the plan referred to in the preceding paragraph, within the five days following the date on which the Superintendency of Banks notifies it to the bank or the financial company.

The Superintendency of Banks, within the time limit of five days following the date of submission of the plan by the bank or the financial company, shall approve it, shall reject it for considering it not viable, or shall formulate the amendments it deems pertinent.

If the plan is rejected or requires amendments, the bank or the financial company shall submit the corrected plan within the time limit of the five days following the date on which the Superintendency of Banks notifies it thereof. The Superintendency of Banks, within the five days following the date of having received the corrected plan, shall approve or reject it; in the latter case, for considering it not viable. In case of rejection of the corrected plan, or if the entity in question does not submit it within the established time limits, the other measures established in this Law shall be applied.

In any case, the bank or the financial company shall initiate the corresponding actions to remedy the capital deficiency from the moment it is determined.

The bank or the financial company shall execute the regularization plan approved by the Superintendency of Banks, within the time limit set by the latter, which may not exceed three months counted from the date of approval. The measures adopted shall be maintained until the capital deficiency is remedied.

When an entity is subject to a regularization plan it may not pay dividends nor grant loans to its shareholders, general manager or to companies linked or related to it.

The regularization plan shall contain at a minimum some or all of the following measures, as applicable:

a)The reduction of assets, contingencies and/or the suspension of operations subject to capital requirement;

b)The capitalization of reserves and/or profits necessary to cover the capital deficiencies;

c)The increase of the authorized capital and the issuance of shares in the amount necessary to cover the capital deficiencies;

d)Payment with its own shares to its creditors, with the consent thereof;

e)The contracting of one or more subordinated loans within the capital structure of the bank;

f)The sale in public offering of a number of shares of the bank or the financial company which, placed at their nominal value or at a different value, allow the capital deficiency to be remedied totally or partially, as the case may be, observing the provisions of Article 19 of this Law. If the bank or the financial company does not have sufficient authorized capital to issue the required amount of shares, then, the authorized capital shall be deemed automatically increased by operation of law, in the sum necessary to cover the deficiency; and,

g)The disposal or negotiation of assets and/or liabilities.

When a branch of a foreign bank presents a capital deficiency, the Superintendency of Banks shall communicate it to the head office, which shall remedy the deficiency within the time limit of thirty days, counted from the date of the communication. In case said deficiency is not remedied, the regime of suspension of operations and exclusion of assets and liabilities referred to in this Law shall be applied to it, without prejudice to the provisions of Article 18 of this Law.

The Superintendency of Banks shall keep the Monetary Board informed about the banks and financial companies that present capital deficiency.

Banks and financial companies that are subject to regularization due to capital deficiency shall submit reports to the Superintendency of Banks on their capital position, with the periodicity determined by the latter.

Banks and financial companies that are subject to regularization due to capital deficiency may only open new agencies or branches with the prior approval of the Superintendency of Banks.

When a financial group presents a patrimonial deficiency, as established in Article 69 of this Law, the controlling company or the responsible company shall immediately inform the Superintendency of Banks thereof; if it fails to do so, it shall be subject to the sanctions provided for in this Law, without prejudice to the application of other applicable legal provisions. Likewise, it shall remedy the deficiency.

If the controlling company or the responsible company does not regularize the patrimonial deficiency which, in accordance with the law, is cause for total dissolution of the deficient company in question, the Superintendency of Banks shall request the corresponding dissolution from the competent judge. If it is a bank or finance company, the provisions of Chapter II of this Title shall apply.

The controlling company or responsible company shall submit reports to the Superintendency of Banks, with the periodicity determined by the latter, on the consolidated patrimonial position of the financial group and the individual position of each of the member companies.

The Superintendency of Banks shall keep the Monetary Board informed about financial groups presenting consolidated patrimonial deficiencies.

Banks shall also be required to submit regularization plans with the time limits and characteristics mentioned in Articles 70 and 71 of this Law, when the Superintendency of Banks detects the following:

a)Repeated noncompliance with the applicable legal and regulatory provisions, as well as with the instructions of the Superintendency of Banks;

b)Legal reserve deficiencies for two consecutive months or for three different months during a one-year period;

c)Existence of management practices that, in the judgment of the Superintendency of Banks, place its liquidity and solvency situation in serious danger; and,

d)Submission of financial information that, in the judgment of the Superintendency of Banks, is not true or that the documentation is false.

In cases in which the bank is required to submit the regularization plan referred to in articles 70 and 73 of this Law, the Superintendency of Banks may designate, during the regularization period, a delegate with veto power over decisions adopted by the bank aimed at preventing implementation of the regularization plan. The foregoing does not mean that the delegate exercises co-administration functions.

The delegate of the Superintendency of Banks shall attend the meetings of the Board of Directors; in the event of opposition to the veto, legal actions brought against the veto shall not suspend its effects.

While the regularization remains in force, the Superintendency of Banks may remove and/or prohibit from exercising the office of one or more of the directors or administrators. In the latter case, the delegate shall immediately convene an extraordinary general shareholders' meeting so that, in accordance with the deed of incorporation of the bank in question, the new members of the Board of Directors are appointed. Likewise, the Superintendency of Banks may remove general managers, managers, deputy managers, and any executives. In any event, compliance or non-compliance with the regularization plan is the responsibility of the management of the entity.

The Monetary Board shall immediately suspend the operations of a bank or a financial company, in the following cases:

a)When it has suspended payment of its obligations; and,

b)When the equity deficiency exceeds fifty percent of the equity required pursuant to this Law.

Likewise, the Monetary Board may decide the suspension of operations of the entity in question, due to failure to submit the regularization plan or the definitive rejection thereof by the Superintendency of Banks or non-compliance with said plan, or for other reasons duly substantiated in the report of the Superintendent of Banks.

Voluntary liquidation may not be requested before the judge unless the prior authorization of the Superintendency of Banks is obtained, which may only be granted when at least all creditor claims of the entity have been fully satisfied.

While the suspension regime lasts, any proceedings of any nature or precautionary measure brought against the bank or financial company concerned shall be suspended. Likewise, during the suspension the entity may not incur new obligations and the enforceability of its liabilities shall be suspended, as well as the accrual of its interest.

The suspension of operations shall in no case cause the authorities, public officials, entities, bodies or institutions that have participated in the adoption of the respective measure to incur any liability.

Checks drawn against the suspended bank shall not be included in the operations of the clearinghouse, from the moment the suspension of operations is ordered.

The Monetary Board, upon proposal by the Superintendency of Banks, no later than the day after the suspension of operations is ordered, shall appoint a Board for the Exclusion of Assets and Liabilities, composed of three members, who shall be exempt, as a collegiate body or individually considered, from furnishing a bond or guarantee for their actions.

The members of the Board for the Exclusion of Assets and Liabilities have all legal powers to act legally, judicially and extrajudicially within the scope of the attributions assigned to it by law. They shall also have the powers required to execute acts and enter into contracts that fall within the course of their attributions.

By operation of law and for reasons of social interest, the rights embodied in the shares of the bank or financial company in question are suspended and its directors or administrators are removed from their offices; likewise, mandates of all kinds granted on behalf of the suspended entity are revoked, in which case the provisions of Article 1715 of the Civil Code, Decree-Law Number 106, shall not be applicable.

The Board for the Exclusion of Assets and Liabilities shall functionally depend on the Superintendent of Banks, and shall report on its actions to the Monetary Board through the Superintendency of Banks.

The Board for the Exclusion of Assets and Liabilities shall keep an orderly and documented account of its management.

The members of the Board for the Exclusion of Assets and Liabilities of the bank or financial company in question, against whom proceedings, trials or lawsuits arising from acts and decisions adopted in accordance with the law in the exercise of their attributions, functions or obligations are brought, are entitled to have the Bank of Guatemala cover the expenses and costs necessary for their defense.

The provisions of the preceding paragraph shall apply to those members of the Board for the Exclusion of Assets and Liabilities of the bank or financial company in question, even when they are no longer holding such offices, provided that the proceedings, trials or lawsuits brought arise from acts and decisions adopted in accordance with the law in the exercise of the attributions, functions or obligations corresponding to them.

The Assets and Liabilities Exclusion Board shall be empowered to adopt the application of one or all, in no determined order, of the following measures:

a)Determine the losses and write them off against legal reserves and other reserves and, where applicable, against capital accounts;

b)Order the exclusion of assets on the balance sheet of the suspended entity, in one or more of the following forms:

b.1) For an amount equivalent to or greater than that of the liabilities mentioned in subparagraph c.1) of this article, and the transfer of such assets to a trust administered by the entity chosen by the Superintendency of Banks;

b.2) For an amount equivalent to that of the liabilities mentioned in subparagraph c.1) of this article and the disposal of such assets, through competitive procedures, in favor of one or more banks, in accordance with the corresponding regulations; or,

b.3) For an amount equivalent to or greater than that of the liabilities mentioned in subparagraph c.2) of this article, and the disposal of such assets, through competitive procedures, in favor of a bank, in accordance with the corresponding regulations.

The excluded assets shall be taken in accordance with accounting standards, at their book value, net of provisions, reserves and any other adjustment determined by the Superintendency of Banks, in accordance with existing prudential rules and regulations;

c)Exclude the liabilities on the balance sheet of the suspended entity, in one of the following forms:

c.1) Exclude deposits up to the amount covered by the Savings Protection Fund and labor liabilities.

If the estimated value of the assets mentioned in subparagraphs b.1) and b.2) of this article so permits, there shall be excluded in the first place the remainder of deposits and amounts debited from deposit accounts or amounts received, in both cases for the purchase of cashier's or manager's checks, foreign drafts or for fund transfers, provided that such transactions had not been settled at the time of the suspension of operations; in the second place, bonds and promissory notes whose creation and negotiation has been authorized by the Monetary Board to the bank or financial company in question, provided they are not convertible obligations, subordinated obligations or any other debt instrument with capital characteristics. The transactions, bonds and promissory notes referred to in this paragraph corresponding to persons related to the suspended entity, as well as the deposits of such persons, shall not form part of the exclusion.

For purposes of the provisions of the preceding paragraph, the Monetary Board, upon proposal of the Superintendency of Banks, shall establish the procedure for determining the maximum amount to be excluded.

The bank assuming the corresponding obligations, resulting from the exclusion referred to in this subparagraph c.1), shall document the substitution in favor of the creditor according to the conditions as agreed.

c.2) Exclude the total liabilities of the suspended entity.

The bank assuming the corresponding obligations, resulting from the exclusion referred to in this subparagraph c.2), shall document the substitution in favor of the creditor according to the conditions as agreed.

d)Transfer to one or more banks, in accordance with the corresponding regulations, the liabilities indicated in subparagraph c.1), which shall receive as consideration an amount equivalent to such liabilities in:

d.1) Participation certificates issued for such purpose by the trust referred to in subparagraph b.1) of this article, net of transaction costs authorized by the Assets and Liabilities Exclusion Board; or,

d.2) Assets of the suspended entity.

e)Transfer to a bank, in accordance with the corresponding regulations, the liabilities indicated in subparagraph c.2), which shall receive as consideration for such liabilities all of the assets of the suspended entity.

To carry out the transfers referred to in paragraphs d) and e) above, the consent of the debtor, creditor or any other holder shall not be required.

The Monetary Board, upon prior report of the Superintendency of Banks, may authorize the Assets and Liabilities Exclusion Board to dispose of all or a significant amount of the assets and to transfer the liabilities referred to in subparagraphs b.2) and b.3) and subparagraph c) of this article, to foreign banks meeting the following requirements:

1.That they have a risk rating granted by a risk rating agency recognized by the United States Securities and Exchange Commission (Securities and Exchange Commission -SEC-), which is acceptable in the judgment of the Superintendency of Banks;

2.That they have more than five (5) years operating in the country that granted them the license; and,

3.That in their countries of origin supervision exists in accordance with international standards.

The foreign bank to which assets are disposed of and liabilities transferred under the provisions of the preceding paragraph shall be immediately authorized to operate as a foreign bank branch in the country for a term of one year, extendable by the Monetary Board, upon proposal of the Superintendency of Banks, in accordance with the application submitted by the interested bank. Within the established term, said entity shall complete the remaining requirements for definitive establishment as a foreign bank branch in the country. Otherwise, it shall proceed to withdraw from the country in accordance with Article 18 of this Law.

This article shall be regulated by the Monetary Board, upon proposal of the Superintendency of Banks.

The Monetary Board, upon proposal of the Superintendency of Banks, no later than the day following the ordering of the suspension of operations, shall appoint a legal representative of the suspended entity, who shall be vested with the powers to represent said entity judicially and extrajudicially and shall not interfere in the functions and attributions of the Asset and Liability Exclusion Board.

The legal representative shall, in addition, have the following powers:

a)To appear on behalf and in representation of the suspended entity to: execute releases of payment for loans fully paid prior to the suspension, grant mandates with representation for the preservation of assets, rescind contracts, as well as grant others that are necessary for the exercise of his powers; to execute instruments of substitution of the fiduciary capacity of the suspended entity and to extinguish trusts in which said entity appears as fiduciary;

b)To be responsible for the safekeeping and custody of the property and documents delivered to him by the Asset and Liability Exclusion Board, until the depositary appointed in the bankruptcy proceedings takes possession thereof. For purposes of the preservation of such property and documents, the Monetary Board shall determine the source of the resources; and,

c)Others as determined by the Monetary Board.

The legal representative shall perform the office under his strict responsibility, and shall render a written report of his actions to the Monetary Board, through the Superintendency of Banks, when his administration ends and when required by said collegiate body. His fees shall be established by the Monetary Board, which shall determine the source thereof, and he shall enjoy legal protection under the terms referred to in Article 78 of this Law.

The initiated proceedings and the ordered interim protective measures that tend to affect the excluded assets, whose transfer was ordered by the Asset and Liability Exclusion Board pursuant to this Law, shall be suspended.

The Fund for the Protection of Savings may, at the request of the Board for the Exclusion of Assets and Liabilities, make contributions, even without consideration, to the trust referred to in Article 79 of this Law. Additionally, the Fund for the Protection of Savings may purchase at face value the participation certificates in the trust referred to in Article 79; it may likewise enter into contracts for purchase and sale covering part or all of said certificates. In these cases, the total disbursements made by the Fund for the Protection of Savings may not exceed the amount of the deposits of the suspended bank covered by the guarantee of said Fund.

The Fund for the Protection of Savings, at the request of the Board for the Exclusion of Assets and Liabilities, shall reimburse in cash or with other liquid assets to the acquiring bank the assets that the latter, for duly justified causes, returns to the suspended entity. The acquiring bank shall have a time limit of sixty (60) days, counted from the date of the disposal, to return the disposed assets to the suspended entity, at their book value or at the disposal value, whichever is lower.

When dealing with the disposal referred to in subparagraph b.2) of Article 79 of this Law, the value of said return may not exceed twenty percent (20%) of the amount of the assets in question or seventy-five percent (75%) of the amount of the guaranteed deposits assumed, whichever is lower.

In the case of the disposal referred to in subparagraph b.3) of Article 79, the value of said return may not exceed thirty percent (30%) of the amount of the assets in question or one hundred percent (100%) of the amount of the guaranteed deposits assumed, whichever is lower.

The Asset and Liability Exclusion Board, within five days after completion of the transfer of assets and liabilities referred to in Article 79 of this Law, shall submit a written report to the Monetary Board on the result of its management.

Within the same time limit, the Monetary Board, at the request of the Superintendency of Banks, shall revoke the authorization to operate of the entity in question.

When the Asset and Liability Exclusion Board of the suspended entity has ceased in its functions and attributions, the Bank of Guatemala, as administrator of the resources of the Fund for the Protection of Savings, and in its capacity as special trustor in the trust referred to in subparagraph b.1) of Article 79 of the Law of Banks and Financial Groups, shall be empowered to execute, jointly with the trustee, the instruments necessary to clarify, expand or amend the instruments pertaining to the transfer of assets to the aforementioned trust, until the termination thereof.

The Monetary Board, within the time limit of fifteen (15) days following receipt of the report referred to in article 82, shall instruct the Superintendency of Banks to request from a Trial Court of First Instance for Civil Matters the declaration of bankruptcy of the suspended entity in question.

The trial court hearing such request shall decide the declaration of bankruptcy referred to in the preceding paragraph, within the time limit of five (5) days, counted from the day on which it receives such request.

For purposes of said declaration of bankruptcy, the trial court shall take as a basis the balance sheet provided by the Superintendency of Banks, as resulting after the exclusion, transfer or disposal of assets and liabilities is carried out.

Any balance or remainder of value that remains in the trust referred to in subparagraph b.1) of Article 79, once all participation certificates therein have been paid, shall be transferred to the Fund for the Protection of Savings, up to the amount contributed by the latter to said trust; if any remainder remains, it shall be transferred to the judicial liquidation.

In the case of the disposition of assets referred to in subparagraphs b.2) and b.3) of Article 79, any balance or remainder of value that remains in the suspended bank, after the return referred to in Article 81, shall be transferred to the Fund for the Protection of Savings, up to the amount restituted to the acquiring bank; if any remainder remains, it shall be transferred to the judicial liquidation.

The transfer or disposal of assets, the transfer of liabilities and the return of assets carried out on the basis of Articles 79 and 81 of this Law, as well as the disposal carried out by the Fund for the Protection of Savings to liquidate the assets arising from the exclusion of assets and liabilities, shall be exempt from payment of the Value Added Tax and the Tax on Fiscal Stamps and Special Stamped Paper for Protocols. Likewise, the income obtained by the trusts established in accordance with subparagraph b.1) of the cited Article 79 shall be exempt from Income Tax.

The exclusion of assets and liabilities regulated in this Chapter shall be applicable to the financial companies referred to in Decree-Law Number 208 to the extent applicable, according to the nature of their operations.