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Board Tightens Norms Shuts Backdoor Entry of Promoters

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Board Tightens Norms Shuts Backdoor Entry of Promoters
?INSOLVENCY CURBS Bankruptcy board has empowered the committee of creditors to conduct a due diligence on bidders' background and viability of resolution plans to prevent frivolous bids and thwart attempts at backdoor entry of promoters who ran the enterprise aground
The Insolvency and Bankruptcy Board Tuesday tightened disclosure norms for insolvency professionals, and empowered the committee of creditors to conduct thorough due diligence on the bidders' background and viability of resolution plans.
The latest move is likely to prevent any frivolous bids and also thwart attempts at backdoor entry of promoters who ran the enterprise aground. This would help realise the objective of the code that was enacted to protect the value of assets.
“A key objective of the Insolvency and Bankruptcy Code is insolvency resolution of corporate persons in a time bound manner for maximisation of value of their assets,“ IBBI said in statement on its Web site. “This objective would be achieved only if a resolution process ends up with a credible resolution plan that maximises the value of assets of the corporate debtor, that is, the plan has been drawn up realistically and would be implemented successfully.''
Even as hundreds of cases head to bankruptcy courts either voluntarily taken by creditors, or forced by RBI, the resolution process is getting complicated with innumerable potential bidders expressing interest just to get data, and promoters using benami companies to bid for the same assets on which they defaulted.
Bankers are also confounded by the prospects of the same promoters bidding for the assets and being accused of siding with them, although there is no law that prohib its such bids. “The process of evaluation will be decided by the committee of cred itors and anyone who gives the highest bid will get preference. We will go by the net pre sent value,“ said Sunil Mehta, CEO of Pun jab National Bank. “Money is money.'' But the amendment to the insolvency rules does not prevent promoters from bidding ei ther.
“Although there is no restriction as to who can submit a resolution plan, it should come from any person who can really rescue the insolvent business and the committee of creditors is expected to approve the best of them,'' said the IBBI statement. But to prevent abuse of the system, the IBBI has focused more on disclosure of the bids.
“The resolution plan shall disclose the details in respect of the resolution applicant, persons who are promoters or in management or control of the resolution applicant'' and “persons who will be promoters or in management or control of the business of the corporate debtor during implementation.''
The Economic Times, New Delhi, 08th November 2017

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