The Insolvency And Bankruptcy Code Amendments: Everything You Need To Know
BloombergQuint’s complete coverage of the changes to the Insolvency and Bankruptcy Code, all at one place.
The President of India on Thursday gave his assent to an amendment in the Insolvency and Bankruptcy Code that barred a majority of defaulting promoters from buying back their assets.
The changes via an ordinance made at least nine categories of persons ineligible for submitting a resolution plan for the indebted companies facing insolvency action at the National Company Law Tribunal.
Amendments to the code said that those whose accounts have been non-performing for a year will not be allowed to participate in the resolution plan. Those who have not have settled overdue amounts on the said accounts will also not be permitted, said another provision within the amendments.
The move came at a time when about 50 of the India’s biggest defaulting companies face insolvency proceedings. In June, the RBI identified 12 large accounts, which made up 25 percent of the banking system’s gross non-performing assets and asked banks to refer these for resolution under the IBC. It then came out with a second list with another 30-40 companies in September. The RBI has given banks until Dec. to try and come up with a resolution plan, failing which these firms, too, must be taken to bankruptcy court.
The newly introduced provisions indicate that promoters of at least the first list of 12 large cases referred to the IBC under direction by the RBI would not be allowed to bid.
Here’s BloombergQuint’s complete coverage of the events as they unfolded, and what experts on the subject had to say.
Prominent corporate lawyer Sharfdul Shroff, executive chairman of law firm Shardul Amarchand Mangaldas & CO. explained the aapplication of these criteria and other changes made through the ordinance.
It is intended to knock off people who have defaulted. It is that principal that they don’t want anybody to misuse. Their intention is to knock off people who have fiddled with the system.Shardul Shroff, Executive Chairman, Shardul Amarchand Mangaldas & Co.
According to him, promoters that have not submitted a resolution plan for their assets still have a small window of opportunity where they can repay their overdues including the interest and can participate in the bidding process.
Lawyers and bankers that BloombergQuint spoke to said that promoters of defaulting companies will now be encouraged to take timely action as they stand the risk of losing their own assets.
The intention is clear. If you have non-performing assets, start on their resolution immediately.VG Kannan, CEO, Indian Banks’ Association
G Padmanabhan, non-executive chairman at Bank of India, called it a step in the right direction as it attacks those "who've played the system" right away. Former RBI deputy governor R Gandhi too weighed in adding that the amendments will bring in "greater seriousness on the part of the promoters".
Bloomberg Gadfly columnist Andy Mukherjee argued that keeping the promoters out of the bidding race would actually depress the value that others would be willing to pay for the stressed assets.
This would cause lenders to undertake "harsher haircuts" and in turn increase the burden on taxpayers.
Top bankers in the country cheered the amendment, but with caution, as the changes may hurt the immediate prospects of recovery from bad loan accounts.
Rajnish Kumar, chief of India's largest lender, State Bank of India Ltd., however had a contrarian view on that. He siad that the assets would only be sold at the fair value because there is plenty of interest in the cases that are already being resolved under the IBC.
In a media statement, he quipped “We don’t mind a haircut, but we don’t want to be bald”.
In a column published on BloombergQuint, Shardul Shroff called the amendment a "watershed moment in corporate insolvency".
Shroff wrote that the adage that "there are only sick companies but no sick promoters" will cease to be true in the future.
Top lawyer and managing partner of law firm Cyril Amarchand Mangaldas, Cyril Shroff, acknowledged the underlying political message to promoters of insolvent companies. However, he added that the IBC ordinance may actually end up hurting the commercial outcome from the insolvency process and hence needs better drafting.
He added that the government might've gone too far with the amendments.
BloombergQuint's Ira Dugal wrote that the government has pushed up the credibility of India's bad loan clean up in one clean sweep through the amendment.
The amendments will have far-reaching implications for banks which might not all be positive, but certainly worth it, she argued.
Managing director of proxy firm ICAN Advisors, said that the amendments were hurried and will force banks to take larger haircuts on the stressed assets.
Singhvi told BloombergQuint that he expects fewer bids to come in for large stressed accounts facing insolvency since promoters won't be part of the bidding.
It was just not needed. It was done in hurry. Somebody said its a historical moment and I don’t see any moment or history in it. So, I am amazed. What was the need of this?Anil Singhvi, Managing Director, ICAN Adivsors