The government will, in principle, ban the practice by financial companies of continuing collections by extending the statute of limitations on arrears receivables. It will disclose the performance of write-offs of arrears receivables across all financial sectors and provide incentives to financial companies with strong results.
According to the financial sector on the 8th, the financial authorities will revise the Financial Supervisory Service's "detailed rules on recognition of bad debts for financial institution receivables" in the second quarter to improve the standards for treating the expense of write-off losses on time-barred receivables by financial companies.
The financial authorities decided to recognize the relevant expense as a loss and grant corporate tax relief to financial companies that write off arrears receivables without extending the statute of limitations. In principle, the statute of limitations on financial institutions' arrears receivables is completed five years after maturity, but financial companies have been criticized for extending the statute of limitations through applications for payment orders and other means, creating long-term delinquents.
Accordingly, if companies allow automatic write-offs without extending the statute of limitations, they will receive corporate tax relief. Although it is not a mandatory clause, financial companies are effectively treating it as a ban on extending the statute of limitations. The system will take effect in the third quarter.
An official at a financial company said, "The financial authorities say they will offer corporate tax relief, and few financial companies will choose not to take it and instead extend the statute of limitations."
The Financial Services Commission (FSC) and the Ministry of Justice are also pushing to abolish the special provision for service by public notice. When the statute of limitations on arrears receivables approaches, financial companies can extend the period by up to 10 years through a court payment order (dunning procedure) or acknowledgment of the debt. If a financial company applies, the court issues a payment order and must notify the debtor. If the debtor does not file an objection within 14 days, the statute of limitations is automatically extended.
Currently, as an exception limited to financial receivables, if a debtor's address is unclear, the special provision for service by public notice applies, allowing the obligation to notify the debtor to be waived by posting the notice on the court bulletin board or in the official gazette. This means a financial company can extend the statute of limitations on a receivable by 10 years without notifying the debtor directly.
If the special provision is abolished, financial companies will have to go through ordinary litigation procedures to extend the statute of limitations. With more expense and time required, the benefit of extending the statute of limitations will diminish. The Financial Services Commission (FSC) and the Ministry of Justice will soon begin work on revising the law to abolish the special provision.
The financial authorities will also disclose, in the second quarter, the performance of receivables write-offs across all financial sectors. They plan to provide incentives, such as differential application of statutory grants contributions, based on performance.