New amendments to bankruptcy code can maximise recovery of stressed assets – DNA India

Code of Insolvency and Bankruptcy: The watchdog IBBI has amended its regulations to permit sale of one or more assets of an entity undergoing insolvency resolution process, among other changes, in a move that will improve market-linked solutions for stressed companies.

Also, the Committee of Creditors (CoC) can now examine whether a compromise or an arrangement can be explored for a corporate debtor during the liquidation period.

The Insolvency and Bankruptcy Board of India (IBBI) has amended the regulations with the "objective to maximise value in resolution" and they came into effect from September 16.

As many as 1,703 Corporate Insolvency Resolution Processes (CIRPs) ended up in liquidation till the end of June this year.

When there are no resolution plans for the entire company, the regulator has given a resolution professional and the CoC permission to look into selling one or more of the corporate debtor's assets.

The Market-Linked and Time-Bound Resolution of Stressed Assets is provided by the Insolvency and Bankruptcy Code (IBC).

The amended regulations will also enable a "resolution plan to include sale of one or more assets of CD (Corporate Debtor) to one or more successful resolution applicants submitting resolution plans for such assets and providing for appropriate treatment of the remaining assets."

Marketing of assets of a corporate debtor can be done that will help in wider dissemination of information to a wider and targeted audience of potential resolution applicants, with the amendments to IBBI regulations.

"The amendment also enables a longer time for the asset in the market...," IBBI said.

Gaurav Gupte, Partner, Cyril Amarchand Mangaldas, said the amendments will provide an impetus to better market-led solutions for insolvency resolution.

"The amendments will ensure that better quality information about the insolvent company and its assets is available to the market, including prospective resolution applicants, in a timely manner," he added.

He claims that in order to provide a clearer picture of the debt, a resolution specialist will need to actively seek claims from known (based on the company in question's books of accounts) creditors.

"Details of any applications filed for avoidance of transactions will be made available to resolution applicants before submission of resolutions plans and can be addressed by the applicants in their plans.

"Thirdly, the information memorandum is required to contain material information which will help in assessing its position as a going concern, and not only information about its assets, thereby addressing a critical need of the market," he added.

As per IBBI's newsletter for the April-June period, as many as 1,703 Corporate Insolvency Resolution Processes (CIRPs) ended up in liquidation orders till the end of June this year.

The duration of these procedures was on average 428 days.

The total amount sought in these cases was Rs 8.19 lakh crore, but the assets themselves were only worth Rs 0.59 lakh crore.

Till June, 2022, 374 CDs have been completely liquidated... These 374 CDs together had outstanding claims of Rs 71,766.03 crore, but the assets valued at Rs 3,046.17 crore. Rs 2,936.30 crore were realised through liquidation of these companies," the newsletter said.

(with inputs from PTI)

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New amendments to bankruptcy code can maximise recovery of stressed assets - DNA India