INDIAN STRESSED ASSETS OPPORTUNITY
India is the world’s fastest-growing economy, the world’s largest democracy, and the fifth-largest economy, blessed with abundant natural resources, and diversified & young human resources, India is a LAND of OPPORTUNITY.
This LAND of OPPORTUNITY witnessed a huge capex cycle beginning in 2005 and peaking in 2012, this capex cycle which was unbridled, unmonitored and to some extent bordered on euphoria and speculation, little wonder that the Indian banking system started getting saddled with defaults & NPAs beginning 2013, which as of date is a mind-boggling Rs 10Lakh Crores.
The gravity of the situation can be gauged from the fact that the officially declared Rs 10 Lakh Crores of NPA is almost 50% of the total market capitalization of all Indian Banks and more than the entire market capitalization of all the PSU banks put together. As of March 2018, the NPA Ratio was threatening 10.8% of the total advances of the Indian Banking system, thereby India’s present NPA problem ranks among the world’s worst.
If we add to this Rs 10 Lakh Crore of NPA the amount of NPAs and Stress in the NBFC sector and also add the NPAs /Stressed assets with ARCs and the assets lying locked up in 1000s of companies languishing in winding up proceedings before the HC and in BIFR or pending Liquidation with various adjudicators we could be easily glaring at an approximate figure of more than Rs 16Lakh Crores.
There is blood in the Indian Financial world and herein lies the opportunity, a screaming opportunity to pick up great assets at huge discounts. The majority of these assets are world-class manufacturing facilities, infrastructure projects, power projects, land banks, stalled real-estate projects, service industries and of course, corporates seeking bridge funding desperately.
This humungous figure of NPA and the fact that great assets are available at minimum of 40%-50% discount to fair value, when seen in the backdrop of the inherent strength & potential of the Indian Economy presents an opportunity of a lifetime – certainly not to be missed.
This LAND of OPPORTUNITY witnessed a huge capex cycle beginning in 2005 and peaking in 2012, this capex cycle which was unbridled, unmonitored and to some extent bordered on euphoria and speculation, little wonder that the Indian banking system started getting saddled with defaults & NPAs beginning 2013, which as of date is a mind-boggling Rs 10Lakh Crores.
The gravity of the situation can be gauged from the fact that the officially declared Rs 10 Lakh Crores of NPA is almost 50% of the total market capitalization of all Indian Banks and more than the entire market capitalization of all the PSU banks put together. As of March 2018, the NPA Ratio was threatening 10.8% of the total advances of the Indian Banking system, thereby India’s present NPA problem ranks among the world’s worst.
If we add to this Rs 10 Lakh Crore of NPA the amount of NPAs and Stress in the NBFC sector and also add the NPAs /Stressed assets with ARCs and the assets lying locked up in 1000s of companies languishing in winding up proceedings before the HC and in BIFR or pending Liquidation with various adjudicators we could be easily glaring at an approximate figure of more than Rs 16Lakh Crores.
There is blood in the Indian Financial world and herein lies the opportunity, a screaming opportunity to pick up great assets at huge discounts. The majority of these assets are world-class manufacturing facilities, infrastructure projects, power projects, land banks, stalled real-estate projects, service industries and of course, corporates seeking bridge funding desperately.
This humungous figure of NPA and the fact that great assets are available at minimum of 40%-50% discount to fair value, when seen in the backdrop of the inherent strength & potential of the Indian Economy presents an opportunity of a lifetime – certainly not to be missed.
- OVERVIEW AND DEVELOPMENT OF INDIAN INSOLVENCY LAWS
The first effective legislation to address the Industrial sickness in India was the SICA (Sick Industrial Companies Act) 1985, under this legislation BIFR (Board of Industrial and Finance Reconstruction) was set up as an apex board to spearhead the handling of industrial sickness issue, including reviving and rehabilitating potentially sick industries.
To give more impetus to the financial institutions to recover their debts, it was felt that special tribunals be set up to deal with the cases of debt recovery. Therefore, in 1993 RDDBFI Act (Recovery of Debts Due to Banks and Financial Institution) was promulgated, wherein specialised Debt Recovery Tribunals (DRT) and Debt Recovery Apellate Tribunals (DRAT) were established to fast track the debt recovery process.
All these legislations were still inadequate as the there was no timeline to cases before the DRT and BIFR was used by unscruplous promoters as a sheild against recovery proceedings. Thereby SARFAESI Act 2002 (Securtisation and Reconstruction of Financial Assets and Enforcement of Security Interest) was promulgated wherein for the first time ever the secured creditor was given power and muscle to not only take over the physical possession of the asset but also to dispose off the same without permission from the courts. The SARFAESI Act also laid the foundation of ARCs (Asset Reconstruction Companies) to help the banks in Securitisation of Debt and Asset Reconstruction.
To give more impetus to the financial institutions to recover their debts, it was felt that special tribunals be set up to deal with the cases of debt recovery. Therefore, in 1993 RDDBFI Act (Recovery of Debts Due to Banks and Financial Institution) was promulgated, wherein specialised Debt Recovery Tribunals (DRT) and Debt Recovery Apellate Tribunals (DRAT) were established to fast track the debt recovery process.
All these legislations were still inadequate as the there was no timeline to cases before the DRT and BIFR was used by unscruplous promoters as a sheild against recovery proceedings. Thereby SARFAESI Act 2002 (Securtisation and Reconstruction of Financial Assets and Enforcement of Security Interest) was promulgated wherein for the first time ever the secured creditor was given power and muscle to not only take over the physical possession of the asset but also to dispose off the same without permission from the courts. The SARFAESI Act also laid the foundation of ARCs (Asset Reconstruction Companies) to help the banks in Securitisation of Debt and Asset Reconstruction.
All the actions of DRT and BIFR were however thwarted by the promoters by taking final refuge by getting filed/filing winding up petitions in High Courts under the Companies Act of 1956. The Companies Act was thereby amended in 2013 to give more impetus to the process of winding up and resolution (section 230) in fact one can see the genesis of the present IBC code in the winding up sections of the Companies Act of 2013. However, this winding up process was still slow, uncertain and open to manipulations, the receiver of the assets so appointed by the courts were found wanting in the professional skills needed of the assignment.
To plug the loopholes, the SARFAESI Act and RDDBFI were further amended in 2016, however even after having updated legislations in place, the NPA problem refused to get solved, one of the major reason was a difficult attitude of the promoter (owner) and therefore there was a need to shift the prevailing structure of “Debtor in control” to “Creditor in control”. Another problem was the dithereing and reluctance by the bankers to accept and initiate pragmatic steps to solve the stressed situation due to their fear of departmental inquiry and vigilance being unleashed on them.
- INSOLVENCY & BANKRUPTCY CODE –THE GAME CHANGER
Need was felt therefore to enact a comprehensive stress asset resolution legislation which can provide a visible & feasible resolution achieveable in a definite time frame. Therefore the present day Insolvency and Bankruptcy Code, 2016 (IBC) was promulgated.
Insolvency & Bankruptcy Code (IBC) is a game changer, has the blueprint to execute a practical and reasonable resolution of the NPA is a timebound fashion. It is one of the best piece of legislation to happen to India, the path breaking reforms ushered by the code in the Insolvency resolution domain helped India improve its ranking in the “ease of doing business substantially”.
The spirit of the code is to find a RESOLUTION to the stressed situation, the clear objective is to save & salvage the viable business through the mechanism of RESOLUTION PLAN and to LIQUIDATE the un-viable business so that the assets imprisoned in that un-viable business could be set free to be used more productively elsewhere.
As of April 2019, about 1700 corporates have been admitted for insolvency proceedings, 88 of them have been resolved and NPAs worth more than 1Lakh crore have been resolved. .
Insolvency & Bankruptcy Code (IBC) is a game changer, has the blueprint to execute a practical and reasonable resolution of the NPA is a timebound fashion. It is one of the best piece of legislation to happen to India, the path breaking reforms ushered by the code in the Insolvency resolution domain helped India improve its ranking in the “ease of doing business substantially”.
The spirit of the code is to find a RESOLUTION to the stressed situation, the clear objective is to save & salvage the viable business through the mechanism of RESOLUTION PLAN and to LIQUIDATE the un-viable business so that the assets imprisoned in that un-viable business could be set free to be used more productively elsewhere.
As of April 2019, about 1700 corporates have been admitted for insolvency proceedings, 88 of them have been resolved and NPAs worth more than 1Lakh crore have been resolved. .
- The code ushers in the CREDITOR in control regime , bringing an end to the earlier DEBTOR in control era
- Promoter of the company is dispensed with and management is transfered to a competent registered INSOLVENCY RESOLUTION PROFESSIONALS (IRP) AND ENTITIES (IPE), appointed by the debtors
- Objective is to hammer out a RESOLUTION PLAN ie a feasible & implementable scheme of things to revive the assets , keeping in mind interest of all the stake holders and the effected parties
- Stressed Situation to be resolved within a maximum period of 270days called the CIRP (Corporate Insolvency Resolution Process) period.
- This is a departure from the earlier era wherein auction / liquidation/winding up was the first and last resort and took a lifetime to be completed
- DEFAULTING PROMOTERS and connected/related persons/entities have been banned from submitting the resolution plan and buying back the Assets at a hair cut u/s 29A of the code. Insolvency and bankruptcy board of India (IBBI), the nodal agency for controlling the fight against NPA is formed , it has created a pool of about 2300
- Insolvency Professionals to tackle the stressed situation as of date.
- The mechanism of Resolution Plan approved by NCLT provides a much needed immunity and indemnification to the prospective investor from the uncertainities normally associated with the Stressed Assets, thereby giving him the much needed confidence to bid for the stressed asset aggresively
- CIRP & LIQUIDATION UNDER IBC
The Insolvency resolution mechanism rests on the twin pillar of CORPORATE INSOLVENCY RESOLUTION PROCESS (CIRP) and LIQUIDATION.
| S.NO | CIRP | LIQUIDATION |
|---|---|---|
|
1 |
CIRP= Resolution process starts the moment a company is admitted by NCLT for resolution proceedings |
Liquidation process starts only when the CIRP fails and NCLT orders liquidation |
|
2 |
A Resolution Professional is given the charge to manage the business as a going concern and to find a suitable resolution to the stressed situation |
A liquidator is appointed, who has the mandate and responsibility to sell the assets and maximise the recovery |
|
3 |
Maximum time line for the process is 270 days (litigation free days) |
Time allowed is 2 years, the same is proposed to be reduced to 1 year |
|
4 |
Revival of the stressed corporate/business (not the assets) is attempted |
The assets of the stressed corporate/business are sold :- a) As a going concern b) In a single lot c) In parts (in different lots) d) In slump sale |
|
5 |
A Committe of Creditors (COC) comprising of Financial Creditors is formed, with a responsibility of selecting the suitable Resolution applicant keeping in mind the interest of all the effected stakeholders of the ailing corporate |
- - - |
|
6 |
Resolution Plans are invited from the eligible individuals, corporates, ARCs, AIFs to revive the ailing corporate |
Bids are invited from prospective buyers to bid for assets at a price above the Reserved Price in an e-auction mechanism |
|
7 |
The resolution plan that ensures a revival of the asset by infusing finance and management expertise is put for voting before the COC. 60% of the COC must vote in favor of the plan to be approved |
The highest bidder in the e-auction gets the assets |
|
8 |
The dues of the various stakeholders are recovered as per the proposed resolution plan. The quantum and time line depends upon the conditions in the resolution plan |
Dues of the stakeholders are distributed as per the Waterfall Mechanism of section 53 of the code as and when the assets get sold through the e-auction |
|
9 |
Investor (Resolution Applicant) pays as per his proposal in the resolution plan |
Investor (buyer) needs to pay within 15 days of the auction date (this is being diluted to 90 days) |
|
10 |
The Corporte gets transfered to the Resolution applicant as per the resolution plan |
Only the assets are transfered to th buyer |
Outgoing promoter is not allowed to participate in either of the process
- IBC- AN EVOLVING LEGISLATION
US was the first country to adopt the Insolvency law in 1978 followed by Japan, even these countries took 8-10 years to stabilize the Insolvency law and establish Insolvency resolution as an Industry and essential part of business planning and growth. Kudos to the Indian spirit of adaptability and flexibility, IBC is evolving by the day.
GOI, IBBI and NCLT/NCLAT are very proactive in identifying and accepting the loopholes and shortcomings of the code and have been very prompt in coming up with remedial/corrective ordinances from time to time.
In the next 3-6 months we can expect:-
- Comprehensive rules and guidelines for the LIQUIDATION Process under the code. Strict (and reduced) timeline, extended payment time and more importantly a chance to the Corporate debtor to submit a scheme of Settlement & Compromise u/s 230 of the Companies Act 2016 (upholding the spirit of rescuing the viable business at all cost)
- Group Insolvency Guidelines- Often it is seen that resolution of a single company from a particular business group is not possible till a holistic resolution of entire group in toto is not done. Case in the point- Videocon Grp, Educomp, Ramswarup
- Insolvency resolution of individuals & Partnership firms- Individual and Partnership firms insolvency resolution would be a great step in solving the stress at micro level.This will also help solve the nagging problem of Personal Gurantee of the promoters coming in the way of resolution of the main corporate business
- Cross Border Insolvency – Guidelines to be announced
- Information Utilities- An important pillar and tool to make the entire insolvency resolution process efficient, important guidelines to be issued to attract players from the private sector to set up and promote them
- Funding to run the business a going concern- Guidelines to enable a corporate undergoing CIRP to raise funds from the open market to enable it to function as a going concern
- Improving the quality of RPs, so that a pool of sector-specific resolution experts (individuals and Ies) be created, so that the CIRP and Stressed situation is handled by the most suitable and competent sector-specific resolution team
The list goes on and on, in a nutshell, IBC has done all it can to establish Stressed Assets as an Alternate Investment class and now the ball is in the court of the investors, its up to them to make the most out of this historic and once-in-lifetime opportunity that India presents to the world
INDIAN STRESSED ASSETS OPPORTUNITY
India is the world’s fastest-growing economy, the world’s largest democracy, and the fifth-largest economy, blessed with abundant natural resources, and diversified & young human resources, India is a LAND of OPPORTUNITY.
This LAND of OPPORTUNITY witnessed a huge capex cycle beginning in 2005 and peaking in 2012, this capex cycle which was unbridled, unmonitored and to some extent bordered on euphoria and speculation, little wonder that the Indian banking system started getting saddled with defaults & NPAs beginning 2013, which as of date is a mind-boggling Rs 10Lakh Crores.
The gravity of the situation can be gauged from the fact that the officially declared Rs 10 Lakh Crores of NPA is almost 50% of the total market capitalization of all Indian Banks and more than the entire market capitalization of all the PSU banks put together. As of March 2018, the NPA Ratio was threatening 10.8% of the total advances of the Indian Banking system, thereby India’s present NPA problem ranks among the world’s worst.
If we add to this Rs 10 Lakh Crore of NPA the amount of NPAs and Stress in the NBFC sector and also add the NPAs /Stressed assets with ARCs and the assets lying locked up in 1000s of companies languishing in winding up proceedings before the HC and in BIFR or pending Liquidation with various adjudicators we could be easily glaring at an approximate figure of more than Rs 16Lakh Crores.
There is blood in the Indian Financial world and herein lies the opportunity, a screaming opportunity to pick up great assets at huge discounts. The majority of these assets are world-class manufacturing facilities, infrastructure projects, power projects, land banks, stalled real-estate projects, service industries and of course, corporates seeking bridge funding desperately.
This humungous figure of NPA and the fact that great assets are available at minimum of 40%-50% discount to fair value, when seen in the backdrop of the inherent strength & potential of the Indian Economy presents an opportunity of a lifetime – certainly not to be missed.
This LAND of OPPORTUNITY witnessed a huge capex cycle beginning in 2005 and peaking in 2012, this capex cycle which was unbridled, unmonitored and to some extent bordered on euphoria and speculation, little wonder that the Indian banking system started getting saddled with defaults & NPAs beginning 2013, which as of date is a mind-boggling Rs 10Lakh Crores.
The gravity of the situation can be gauged from the fact that the officially declared Rs 10 Lakh Crores of NPA is almost 50% of the total market capitalization of all Indian Banks and more than the entire market capitalization of all the PSU banks put together. As of March 2018, the NPA Ratio was threatening 10.8% of the total advances of the Indian Banking system, thereby India’s present NPA problem ranks among the world’s worst.
If we add to this Rs 10 Lakh Crore of NPA the amount of NPAs and Stress in the NBFC sector and also add the NPAs /Stressed assets with ARCs and the assets lying locked up in 1000s of companies languishing in winding up proceedings before the HC and in BIFR or pending Liquidation with various adjudicators we could be easily glaring at an approximate figure of more than Rs 16Lakh Crores.
There is blood in the Indian Financial world and herein lies the opportunity, a screaming opportunity to pick up great assets at huge discounts. The majority of these assets are world-class manufacturing facilities, infrastructure projects, power projects, land banks, stalled real-estate projects, service industries and of course, corporates seeking bridge funding desperately.
This humungous figure of NPA and the fact that great assets are available at minimum of 40%-50% discount to fair value, when seen in the backdrop of the inherent strength & potential of the Indian Economy presents an opportunity of a lifetime – certainly not to be missed.
- OVERVIEW AND DEVELOPMENT OF INDIAN INSOLVENCY LAWS
The first effective legislation to address the Industrial sickness in India was the SICA (Sick Industrial Companies Act) 1985, under this legislation BIFR (Board of Industrial and Finance Reconstruction) was set up as an apex board to spearhead the handling of industrial sickness issue, including reviving and rehabilitating potentially sick industries.
To give more impetus to the financial institutions to recover their debts, it was felt that special tribunals be set up to deal with the cases of debt recovery. Therefore, in 1993 RDDBFI Act (Recovery of Debts Due to Banks and Financial Institution) was promulgated, wherein specialised Debt Recovery Tribunals (DRT) and Debt Recovery Apellate Tribunals (DRAT) were established to fast track the debt recovery process.
All these legislations were still inadequate as the there was no timeline to cases before the DRT and BIFR was used by unscruplous promoters as a sheild against recovery proceedings. Thereby SARFAESI Act 2002 (Securtisation and Reconstruction of Financial Assets and Enforcement of Security Interest) was promulgated wherein for the first time ever the secured creditor was given power and muscle to not only take over the physical possession of the asset but also to dispose off the same without permission from the courts. The SARFAESI Act also laid the foundation of ARCs (Asset Reconstruction Companies) to help the banks in Securitisation of Debt and Asset Reconstruction.
To give more impetus to the financial institutions to recover their debts, it was felt that special tribunals be set up to deal with the cases of debt recovery. Therefore, in 1993 RDDBFI Act (Recovery of Debts Due to Banks and Financial Institution) was promulgated, wherein specialised Debt Recovery Tribunals (DRT) and Debt Recovery Apellate Tribunals (DRAT) were established to fast track the debt recovery process.
All these legislations were still inadequate as the there was no timeline to cases before the DRT and BIFR was used by unscruplous promoters as a sheild against recovery proceedings. Thereby SARFAESI Act 2002 (Securtisation and Reconstruction of Financial Assets and Enforcement of Security Interest) was promulgated wherein for the first time ever the secured creditor was given power and muscle to not only take over the physical possession of the asset but also to dispose off the same without permission from the courts. The SARFAESI Act also laid the foundation of ARCs (Asset Reconstruction Companies) to help the banks in Securitisation of Debt and Asset Reconstruction.
All the actions of DRT and BIFR were however thwarted by the promoters by taking final refuge by getting filed/filing winding up petitions in High Courts under the Companies Act of 1956. The Companies Act was thereby amended in 2013 to give more impetus to the process of winding up and resolution (section 230) in fact one can see the genesis of the present IBC code in the winding up sections of the Companies Act of 2013. However, this winding up process was still slow, uncertain and open to manipulations, the receiver of the assets so appointed by the courts were found wanting in the professional skills needed of the assignment.
To plug the loopholes, the SARFAESI Act and RDDBFI were further amended in 2016, however even after having updated legislations in place, the NPA problem refused to get solved, one of the major reason was a difficult attitude of the promoter (owner) and therefore there was a need to shift the prevailing structure of “Debtor in control” to “Creditor in control”. Another problem was the dithereing and reluctance by the bankers to accept and initiate pragmatic steps to solve the stressed situation due to their fear of departmental inquiry and vigilance being unleashed on them.
- INSOLVENCY & BANKRUPTCY CODE –THE GAME CHANGER
Need was felt therefore to enact a comprehensive stress asset resolution legislation which can provide a visible & feasible resolution achieveable in a definite time frame. Therefore the present day Insolvency and Bankruptcy Code, 2016 (IBC) was promulgated.
Insolvency & Bankruptcy Code (IBC) is a game changer, has the blueprint to execute a practical and reasonable resolution of the NPA is a timebound fashion. It is one of the best piece of legislation to happen to India, the path breaking reforms ushered by the code in the Insolvency resolution domain helped India improve its ranking in the “ease of doing business substantially”.
The spirit of the code is to find a RESOLUTION to the stressed situation, the clear objective is to save & salvage the viable business through the mechanism of RESOLUTION PLAN and to LIQUIDATE the un-viable business so that the assets imprisoned in that un-viable business could be set free to be used more productively elsewhere.
As of April 2019, about 1700 corporates have been admitted for insolvency proceedings, 88 of them have been resolved and NPAs worth more than 1Lakh crore have been resolved. .
Insolvency & Bankruptcy Code (IBC) is a game changer, has the blueprint to execute a practical and reasonable resolution of the NPA is a timebound fashion. It is one of the best piece of legislation to happen to India, the path breaking reforms ushered by the code in the Insolvency resolution domain helped India improve its ranking in the “ease of doing business substantially”.
The spirit of the code is to find a RESOLUTION to the stressed situation, the clear objective is to save & salvage the viable business through the mechanism of RESOLUTION PLAN and to LIQUIDATE the un-viable business so that the assets imprisoned in that un-viable business could be set free to be used more productively elsewhere.
As of April 2019, about 1700 corporates have been admitted for insolvency proceedings, 88 of them have been resolved and NPAs worth more than 1Lakh crore have been resolved. .
- The code ushers in the CREDITOR in control regime , bringing an end to the earlier DEBTOR in control era
- Promoter of the company is dispensed with and management is transfered to a competent registered INSOLVENCY RESOLUTION PROFESSIONALS (IRP) AND ENTITIES (IPE), appointed by the debtors
- Objective is to hammer out a RESOLUTION PLAN ie a feasible & implementable scheme of things to revive the assets , keeping in mind interest of all the stake holders and the effected parties
- Stressed Situation to be resolved within a maximum period of 270days called the CIRP (Corporate Insolvency Resolution Process) period.
- This is a departure from the earlier era wherein auction / liquidation/winding up was the first and last resort and took a lifetime to be completed
- DEFAULTING PROMOTERS and connected/related persons/entities have been banned from submitting the resolution plan and buying back the Assets at a hair cut u/s 29A of the code. Insolvency and bankruptcy board of India (IBBI), the nodal agency for controlling the fight against NPA is formed , it has created a pool of about 2300
- Insolvency Professionals to tackle the stressed situation as of date.
- The mechanism of Resolution Plan approved by NCLT provides a much needed immunity and indemnification to the prospective investor from the uncertainities normally associated with the Stressed Assets, thereby giving him the much needed confidence to bid for the stressed asset aggresively
- CIRP & LIQUIDATION
UNDER IBC
UNDER IBC
The Insolvency resolution mechanism rests on the twin pillar of CORPORATE INSOLVENCY RESOLUTION PROCESS (CIRP) and LIQUIDATION.
| S.NO | CIRP | LIQUIDATION |
|---|---|---|
|
1 |
CIRP= Resolution process starts the moment a company is admitted by NCLT for resolution proceedings |
Liquidation process starts only when the CIRP fails and NCLT orders liquidation |
|
2 |
A Resolution Professional is given the charge to manage the business as a going concern and to find a suitable resolution to the stressed situation |
A liquidator is appointed, who has the mandate and responsibility to sell the assets and maximise the recovery |
|
3 |
Maximum time line for the process is 270 days (litigation free days) |
Time allowed is 2 years, the same is proposed to be reduced to 1 year |
|
4 |
Revival of the stressed corporate/business (not the assets) is attempted |
The assets of the stressed corporate/business are sold :- a) As a going concern b) In a single lot c) In parts (in different lots) d) In slump sale |
|
5 |
A Committe of Creditors (COC) comprising of Financial Creditors is formed, with a responsibility of selecting the suitable Resolution applicant keeping in mind the interest of all the effected stakeholders of the ailing corporate |
- - - |
|
6 |
Resolution Plans are invited from the eligible individuals, corporates, ARCs, AIFs to revive the ailing corporate |
Bids are invited from prospective buyers to bid for assets at a price above the Reserved Price in an e-auction mechanism |
|
7 |
The resolution plan that ensures a revival of the asset by infusing finance and management expertise is put for voting before the COC. 60% of the COC must vote in favor of the plan to be approved |
The highest bidder in the e-auction gets the assets |
|
8 |
The dues of the various stakeholders are recovered as per the proposed resolution plan. The quantum and time line depends upon the conditions in the resolution plan |
Dues of the stakeholders are distributed as per the Waterfall Mechanism of section 53 of the code as and when the assets get sold through the e-auction |
|
9 |
Investor (Resolution Applicant) pays as per his proposal in the resolution plan |
Investor (buyer) needs to pay within 15 days of the auction date (this is being diluted to 90 days) |
|
10 |
The Corporte gets transfered to the Resolution applicant as per the resolution plan |
Only the assets are transfered to th buyer |
Outgoing promoter is not allowed to participate in either of the process
- IBC- AN EVOLVING LEGISLATION
US was the first country to adopt the Insolvency law in 1978 followed by Japan, even these countries took 8-10 years to stabilize the Insolvency law and establish Insolvency resolution as an Industry and essential part of business planning and growth. Kudos to the Indian spirit of adaptability and flexibility, IBC is evolving by the day.
GOI, IBBI and NCLT/NCLAT are very proactive in identifying and accepting the loopholes and shortcomings of the code and have been very prompt in coming up with remedial/corrective ordinances from time to time.
In the next 3-6 months we can expect:-
- Comprehensive rules and guidelines for the LIQUIDATION Process under the code. Strict (and reduced) timeline, extended payment time and more importantly a chance to the Corporate debtor to submit a scheme of Settlement & Compromise u/s 230 of the Companies Act 2016 (upholding the spirit of rescuing the viable business at all cost)
- Group Insolvency Guidelines- Often it is seen that resolution of a single company from a particular business group is not possible till a holistic resolution of entire group in toto is not done. Case in the point- Videocon Grp, Educomp, Ramswarup
- Insolvency resolution of individuals & Partnership firms- Individual and Partnership firms insolvency resolution would be a great step in solving the stress at micro level.This will also help solve the nagging problem of Personal Gurantee of the promoters coming in the way of resolution of the main corporate business
- Cross Border Insolvency – Guidelines to be announced
- Information Utilities- An important pillar and tool to make the entire insolvency resolution process efficient, important guidelines to be issued to attract players from the private sector to set up and promote them
- Funding to run the business a going concern- Guidelines to enable a corporate undergoing CIRP to raise funds from the open market to enable it to function as a going concern
- Improving the quality of RPs, so that a pool of sector-specific resolution experts (individuals and Ies) be created, so that the CIRP and Stressed situation is handled by the most suitable and competent sector-specific resolution team
The list goes on and on, in a nutshell, IBC has done all it can to establish Stressed Assets as an Alternate Investment class and now the ball is in the court of the investors, its up to them to make the most out of this historic and once-in-lifetime opportunity that India presents to the world