Published 5 March 2021, The Daily Tribune

Resilience is all about challenges: its beginning, its acceptance, and overcoming the same. One can fight such reality, or belabor what was lost, or one can try to accept the new situation while innovating solutions given the resources available to it. For financial institutions, however, innovations can only work so much without vital legislative support to allow them to paddle through the waves of new normal.  It is a welcome development, then, that on February 16, 2021, Republic Act No. 11523 or the Financial Institutions Strategic Transfer Act (FIST Act) was signed into law.

FIST Act aims to encourage private sector investments in non-performing assets (NPAs) to help in the rehabilitation of distressed businesses, given the economic impact brought about by recent circumstances. It repeals and thereby serves as the fortified version of Republic Act No. 9182 or the Special Purpose Vehicle (SPV) Act of 2002 (SPV Act) which previously governed the issue of NPAs and non-performing loans (NPLs).   

In essence, FIST Act allows banks and other qualified financial institutions duly licensed by the Bangko Sentral ng Pilipinas (BSP) to spin off their NPAs including NPLs to FIST corporations or FISTCs. Such FISTCs will have the power to acquire or invest in the NPAs of financial institutions, to engage third parties to operate, manage and collect such NPAs, and other permitted transactions relative to NPAs and NPLs. 

To qualify as a FISTC, a stock corporation must have a capitalization of at least P500 Million, with a minimum subscribed capital stock of P125 million and minimum paid-up capital of P 31.25 Million. One person corporations under the Revised Corporation Code are not qualified to be FISTCs. If the FISTC will acquire land, at least 60 percent of its outstanding capital stock shall be owned by Philippine nationals as defined under the Foreign Investments Act.

Entities organized under the SPV Act are also qualified to avail of incentives and privileges granted to FISTCs under the FIST Act.

Applications for the establishment and registration of a FISTC must be filed with the Securities and Exchange Commission (SEC) within 36 months or three years from the effectivity of the FIST Act. Apart from registration and capitalization requirements, prospective FISTCs must submit to SEC their investment and contribution plan, features of Investment Unit Instruments (IUIs), rights of the holders of IUIs, among others.

Permitted investors may acquire or hold IUIs in a FISTC in the minimum amount of P10 Million. Such permitted investors are those who are qualified buyers under the Securities Regulation Code, i.e., a bank, registered investment house, insurance company, pension fund or retirement plan maintained by a government entity or manage by a bank or other persons authorized by the BSP, investment company, and others as determined by the SEC based on financial sophistication, net worth, knowledge, and experience in financial and business matters, or amount of assets under management.

To entice investors to invest in FISTCs, FISTCs are granted certain privileges and incentives in the form of tax exemptions and fee privileges for a period of two years from the effectivity of the FIST Act.

Qualified transactions shall be exempt from documentary stamp tax, capital gains tax on transfer of lands and capital assets, creditable withholding income taxes on transfer of land or buildings treated as ordinary assets, and VAT on transfer of NPAs or gross receipts as applicable. There is also 50 percent discount on registration and transfer fees on the transfer of real estate mortgage and security interest to and from the FISTC, on filing fees for foreclosure initiated by FISTC for NPAs acquired, and land registration fees.

To protect borrowers, any transfer of NPLs to FISTCs must comply with notice requirements to the borrowers and all persons holding encumbrances thereon.  Borrowers have at most 30 days to negotiate or restructure their loan. The transfer is also subject to the issuance of a Certificate of Eligibility as NPA by the proper regulatory agency upon application of the financial institution. The existing redemption periods under the General Banking Law, Act No. 3135 and the Rules of Court shall govern.

Another key feature is the protection given to transfers of assets under the FIST Act. Other than the Court of Appeals and the Supreme Court, no court shall issue an injunctive relief against the transfer of NPAs from a financial institution to a FISTC and from a FISTC to a third party, or a dation in payment by the borrower or a third party in favor of a financial institution or a FISTC, or a foreclosure or execution sale of collaterals in settlement of non-performing loans.

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