Introduction to the Asset Management Companies (AMCs) in Taiwan

To assist financial institutions in Taiwan dispose of their non-performing loans (hereinafter referred to as the “NPLs”) and concentrate on their core banking business, the concept of AMCs was introduced into Taiwan by the enactment of “Financial Institutions Merger Law” (hereinafter referred to as the “Law”).

Generally, a financial institution may sell its NPLs to an AMC directly or through an impartial third party (i.e. an FASC who acts on behalf of financial institutions to collect, classify, reassemble and auctions the property to the AMCs, and afterwards may be mandated by the AMCs to conduct public auctions without going to court, which is often more time consuming). The NPLs will likely be resold by the AMC after being repackaged or securitized.

The Law provides the following incentives to facilitate the establishment of AMCs:

1. When the NPLs are acquired from financial institutions, the disclosure of the acquisition is allowed to be made through public announcement instead of notification of the borrowers individually.
2. When a financial institution transfers its NPLs to an AMC, the enforcement orders obtained by the financial institution against the borrower shall be extended to the transferee AMC.
3. When an AMC forecloses a first-priority mortgage on a piece of real estate collateral, the AMC may mandate an impartial third party approved by the competent authority to conduct a public auction without going to court.
4. If an AMC has obtained an enforcement order for NPLs and acts as a subordinate creditor, the competent authority may request the court to use an impartial third-party to conduct the auction, to which Taiwanese Compulsory Enforcement Law applies mutatis mutandis.
5. When considering the petition for bankruptcy or reorganization against the borrower to which the loans turns out to be NPLs of a financial institution, the court shall consult with the AMC that acquires such NPLs.
6. Notwithstanding the regulations, where applicable, set forth in the Taiwanese Company Law and/or Insolvent Law, if prior to the decision of bankruptcy or reorganization of the borrower to which the loans turns out to be NPLs of a financial institution, an AMC acquires such NPLs, the AMC will still be able to exercise or enforce its right as a creditor after the decision of bankruptcy or reorganization against the debtor.
7. The business tax rate of 2% for banking enterprises shall apply to AMCs with regard to disposal of the NPLs of financial institutions.
8. Losses from the sale of NPLs by a financial institution to an AMC may be amortized over five years.