Skip to main content

Defaulting promoters set to lose their companies

Defaulting promoters set to lose their companies
Wilful defaulters and borrowers with NPAs for a year or more cannot bid NOT ELIGIBLE FOR BIDDING
An ordinance amending the and Bankruptcy Code (IBC) barred promoters of undergoing the resolution process for their own companies when auctioned as part of bankruptcy proceedings.Besides, sister concerns and corporate will also not be eligible to these companies.
The ordinance, promulgated Thursday, added Section 29A to “Aperson shall not be eligible to resolution plan if such person, or person acting jointly with such any person who isapromoter or control of such person, insolvent.” This prohibits promoters or sister of companies with non performing more than a year from bidding for these companies
In order to bid, promoters will have to make the NPAs standard assets by paying the principal and interest.However, even this is not allowed once the National Company Law Tribunal (NCLT) has accepted an insolvency petition.
None of the promoters or their associates can buy the stressed assets of the 12 large debt accounts suggested for insolvency proceedings by the Reserve Bank of India. Wilful defaulters also have been banned from buying stressed assets.
Officials said wilful defaulters were fly by night operators and were anyway unlikely to bid for companies.They added promoters were not debarred from bidding unless a case was admitted in the NCLT, but merely discouraged If a company paid, say, Rs 10,000 crore out of its total NPAs of Rs 50,000crore to convert the loan into a standard asset, the insolvency process would benefit, they said.
Insolvency professionals were divided on the Ordinance.Nilesh Sharma, senior partner at Dhir and Dhir Associates, said the government should remove the clause that prohibits any account with NPAs of over one year from bidding.The big concern among resolution professionals is the amendments will disrupt nearly all pending insolvency proceedings.
Besides, the eligibility of all bidders will have to be ascertained before examining their bids. “Earlier, the resolution plan had to qualify for consideration, now the bidder must also qualify.In cases where only the promoter has submitted a plan, and such promoter is found to be in eligible, fresh bids will need to be invited," said Sumant Batra, managing partner of Kesar DassB &Associates.
Companies are allowed180 days to find a resolution plan after a case is admitted by theNCLT.This period can be extended by 90 days. If 270 days elapse or no bidder comes forward, the debtor will be pushed into liquidation.Identification of wilful defaulters has been left to banks, which experts said might lend arbitrariness to the exercise even though it followed RBI guidelines.
"A provision that is punitive or takes away a right must been shrinedin the statute as a substantive provision and not left to be determined by an interested party (lender)," an expert said.The risk is thatapromoter can challenge such determination byalender in court and seekastay on insolvency proceedings till the challenge is decided.
A court might not stay the insolvency process and the promoter could lose his company, but later if the bank´s decision were found to be illegal by court, the promoter would become entitled to claim damages, expertsadded.The amendments also place foreign bidders in an advantageous position as the concept of wilful defaulter may not exist in other countries and the disqualification criteria in corresponding situations may be different.
There are others who support these amendments.“This will reassure new investors about the credibility of the process.Steps taken to provide clarity and reduction of transaction costs associated with resolution would be welcome and will provide for greater participation by investors and more innovative resolution processes,” said Manish Aggarwal of KPMG in India.
The Business Standard, New Delhi, 24th November 2017

Comments

Popular posts from this blog

At 18%, GST Rate to be Less Taxing for Most Goods

About 70% of all goods and some consumer durables likely to cost less

A number of goods such as cosmetics, shaving creams, shampoo, toothpaste, soap, plastics, paints and some consumer durables could become cheaper under the proposed goods and services tax (GST) regime as most items are likely to be subject to the rate of 18% rather than the higher one of 28%.

India is likely to rely on the effective tax rate currently applicable on a commodity to get a fix on the GST slab, said a government official, allowing most goods to make it to the lower bracket.

For instance, if an item comes within the 12% excise slab but the effective tax is 8% due to abatement, then the latter will be considered for GST fitment.

Going by this formulation, about 70% of all goods could fall in the 18% bracket.

The GST Council has finalised a four-tier tax structure of 5%, 12%, 18% and 28% but has left room for the highest slab to be pegged at 40%. A committee of officials will work out the fitment and the council…

Coffee-Toffee, the GST Debate Continues

Hundreds of crores of rupees in the form of taxes ride on the exact categorisation of products Is Parachute hair oil or edible oil? Is KitKat a chocolate or a biscuit? Is a Vicks tablet medicament or confectionery? For the taxpayer and the tax collector, this is much more than an exercise in semantics -hundreds of crores of rupees ride on the exact categorisation.
As the government moves closer to rolling out the goods and services tax (GST) on July 1, many such distinctions are being debated so that no ambiguity remains. Not just that, the government is revisiting old tax cases that were lost over product categorisation, according to people with knowledge of the matter, presumably with a view to making sure that revenue collections can be maximised. “In the past, several tax officers had challenged some of the product categorisations, including those in the retail segment, but lost out in court or at appellate level,“ said one of the persons. “Now we have a chance to go ahead with speci…

Deposit gush:-CA Institute Bats for Special Audit