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Lenders Agree On Common Criteria To Assess Insolvency Bids

Banks to follow common criteria when assessing insolvency bids



A calculator sits on the desk of CPA Mike Dyer as he prepares federal income tax returns for clients at Tax Pros USA in La Grange, Kentucky, U.S. (Photographer: Luke Sharrett/Bloomberg)
A calculator sits on the desk of CPA Mike Dyer as he prepares federal income tax returns for clients at Tax Pros USA in La Grange, Kentucky, U.S. (Photographer: Luke Sharrett/Bloomberg)

Lenders to large stressed accounts, which are currently being resolved under the Insolvency and Bankruptcy Code, have agreed on some common criteria to assess bids for these firms. Many of these firms were admitted for insolvency proceedings last year and are at the stage where bids are being received and assessed.

At a meeting held under the aegis of the Indian Banks’ Association (IBA) this week, three basic criteria have been finalized to help standardize dealing with insolvency bids, two bankers in the know told BloombergQuint on condition on anonymity.

Lenders have agreed to include a bid evaluation matrix in the request for proposal when inviting bids from interested parties. This, according to the first banker quoted above, will help clarify any doubts that bidders may have regarding the criteria being used to evaluate individual bids. So far, the evaluation matrix was available only to lenders and was not shared with the bidders officially.

The matrix will include elements such the preference given to cash bids, how the track record of the bidder will be assessed, the level of haircut that lenders are willing to take etc, said the bankers.

Lenders have also agreed that they will only negotiate with the highest bidder once the bids are opened by the Committee of Creditors (CoC). This norm would be followed even when the difference between two competing bids is marginal.

Finally, in the event that the bids submitted for an insolvent account do not adequately reflect the inherent value of a company, or are not acceptable to the lenders, they can cancel the entire process and call for a rebid.

Lenders Agree On Common Criteria To Assess Insolvency Bids

Lenders were also looking at the possibility of specifying that any tax benefits received due to the removal of the minimum alternative tax (MAT) in the case of stressed asset purchases should be passed on. However, after discussions, bankers decided against this as they felt it could delay the bidding process further, said one of the bankers quoted above.

Most of the 12 large accounts, which were sent for immediate insolvency action on the insistence of the Reserve Bank of India (RBI) in June, are now approaching the final stage where bids have to be assessed. The resolution professionals appointed in a number of these cases have approached the National Company Law Tribunal (NCLT) for a 90 day extension to complete the restructuring process. Under the IBC, the timeline can be extended upto a maximum of 270 days.

By finalizing a common criteria to assess the insolvency bids, lenders will limit discretion in assessing resolution plans. The list of criteria will also set a standard for RBI’s second list of stressed accounts, which was referred for insolvency in January. The second list consisted of 29 stressed accounts.

A total of 525 cases have been admitted under the Insolvency and Bankruptcy Code since it came into effect, according to the economic survey for 2017-18. Of these, the insolvency process is still in progress in 451 cases, where the underlying default amount is over Rs 1.28 lakh crore, the survey noted.