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Expert: Finance Guy Date: 5/28/2008 Subject: Rescheduling & Provisioning
Question Dear Financial Guy,
1. What's the meaning of rescheduling credit facilities? Can you give me a real-life example?
2. There's this general provision account and specific provision needed for loans going bad. What exactly is general provision account and specific provision? How do they work? Any real-life example?
Thanks.
Answer "Rescheduling" is simply the alteration of the terms and conditions of a loan agreement by either the borrower, the lender or the courts. See below:
Rescheduling of debt by lender
(1) A borrower -
(a) who is unable to meet his obligations under a credit agreement as a result of illness, injury, loss of employment, death of working spouse or other reasonable cause of hardship, which affects his capacity to repay the debt; and
(b) who reasonably expects to be able to discharge his obligations if the terms of the credit agreement are revised in a manner set out in subsection (2),
may request the lender to reschedule the debt.
(2) Where a request is made by a borrower under subsection (1), the terms of the credit agreement may be revised by providing for -
(a) an extension of the term and a corresponding reduction in the amount of each instalment due;
(b) a postponement for a specific period of the dates on which instalments are due; or
(c) a change in the terms of payment in such manner as may be agreed upon by both parties.
(3) The revised terms of the credit agreement pursuant to subsection (2) shall -
(a) be agreed upon in such manner as to enable the borrower to reasonably discharge his obligations;
(b) be fair and reasonable to both the borrower and the lender in all the circumstances; and
(c) be made in writing.
(4) This section shall apply to the heirs of a deceased borrower collectively as it would have applied to a borrower referred to in this section.
15. Rescheduling of debt by order of Commissioner
(1) Where a lender does not agree to a revision of the terms of a credit agreement, or the borrower is not agreeable to the revised terms made pursuant to section 14, the borrower may apply to the Commissioner, giving all the relevant information and documents, for an order to reschedule the debt.
(2) The Commissioner may, for the purposes of subsection (1), convene the parties and any other person concerned to a hearing and initiate such other action as he considers appropriate.
(3) The Commissioner may, if he thinks it appropriate in the circumstances, direct the lender to stay any enforcement proceedings under the credit agreement, and make such other order as he thinks fit, until the application is determined.
(4) The Commissioner may, where he is satisfied that the grounds for the rescheduling of the debt are justified, determine the application and issue an order directing the lender to reschedule the credit agreement according to such option specified in section 14(2) as is appropriate for the case.
(5) The Commissioner shall, as far as possible, determine the application within 6 months of the date of the application.
(6) Where the lender and the borrower reach an agreement following an application under subsection (1), the Commissioner shall, within 7 days of the agreement, communicate in writing, by registered post to the parties, the terms of the agreement.
(7) The terms of an order under subsection (4) or an agreement under subsection (6) shall not be altered on more than 2 occasions and no subsequent application under subsection (1) shall, save in exceptional circumstances, be entertained by the Commissioner.
(8) Any party who is dissatisfied with an order under subsection (4) may, within 21 days of the date of the order, apply to a Judge in Chambers to have the order varied or revoked.
