Bankruptcy: Creditors may get to seek part resolution – Times of India
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MUMBAI: Creditors in a bankruptcy process may be required to seek independent resolution plans for different business units of a defaulter where bidders are not interested in the entire diversified business but specialised units.
Currently, lenders go in for liquidation if there are no buyers for a defaulter. Proposed changes will also require creditors in a bankruptcy proceeding to pre-approve a strategy for disposal of the defaulter’s assets when the claims are over Rs 100 crore.
The Insolvency and Bankruptcy Board of India on Monday came out with a discussion paper on the proposed changes in the resolution process to reduce delays and improve resolution value. Another important proposal in the discussion paper requires the resolution to make available not just historical information but also current and future plans of the resolution professional.
According to bankers, in the resolution process, there are cases where the defaulter has both functional and non-functional assets or assets across varied locations or in different businesses in the country. In such cases, the bidders interested in the functional asset or the asset in only one location/ business are not interested in the others. In cases with no successful bidder, the case proceeds towards liquidation where the realisation is far less than expected in the CIRP.
“The present concept of a single resolution plan deters many investors who may be interested in parts based on their strategic or financial interest. In effect, the single resolution plan effectively drives towards the lowest common denominator i e. Liquidation value. Multiple resolution plans are expected to lead to greater value as sum of parts which are attractive , leaving only unviable parts behind,” said Hari Hara Mishra, director, UV ARC.
According to government officials, the bankruptcy law is relatively new in the country and there is need to constantly review it. Bankers said that currently there are a number of issues that make it difficult to achieve the deadlines set under the Act and new rules requiring parties to provide information will help make the process more effective.
The discussion paper contains some other suggestions for richer information including geo-tagging of immovable assets and marketing of the asset by the resolution professional.
Currently, lenders go in for liquidation if there are no buyers for a defaulter. Proposed changes will also require creditors in a bankruptcy proceeding to pre-approve a strategy for disposal of the defaulter’s assets when the claims are over Rs 100 crore.
The Insolvency and Bankruptcy Board of India on Monday came out with a discussion paper on the proposed changes in the resolution process to reduce delays and improve resolution value. Another important proposal in the discussion paper requires the resolution to make available not just historical information but also current and future plans of the resolution professional.
According to bankers, in the resolution process, there are cases where the defaulter has both functional and non-functional assets or assets across varied locations or in different businesses in the country. In such cases, the bidders interested in the functional asset or the asset in only one location/ business are not interested in the others. In cases with no successful bidder, the case proceeds towards liquidation where the realisation is far less than expected in the CIRP.
“The present concept of a single resolution plan deters many investors who may be interested in parts based on their strategic or financial interest. In effect, the single resolution plan effectively drives towards the lowest common denominator i e. Liquidation value. Multiple resolution plans are expected to lead to greater value as sum of parts which are attractive , leaving only unviable parts behind,” said Hari Hara Mishra, director, UV ARC.
According to government officials, the bankruptcy law is relatively new in the country and there is need to constantly review it. Bankers said that currently there are a number of issues that make it difficult to achieve the deadlines set under the Act and new rules requiring parties to provide information will help make the process more effective.
The discussion paper contains some other suggestions for richer information including geo-tagging of immovable assets and marketing of the asset by the resolution professional.
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