Skip to main content

IBC Tweak may Bar Defaulters from Bidding

IBC Tweak may Bar Defaulters from Bidding
Promoters can buy back stressed assets at a discount now, leaving room open for furore
The government is considering amending its insolvency law to prevent existing promoters of bankrupt companies from reacquiring them during the resolution process at a steep discount.The current Insolvency and Bankruptcy Code, passed last year, does not prevent promoters from bidding for these stressed assets during the resolution process.
Some owners are reported to be getting ready to stake a claim for these assets when they are put up for sale by the creditors. But promoters wresting back control of entities after banks take a big haircut would be politically very controversial and an influential section in the government is keen to prevent this from happening.

“There is some discomfort with it (the possibility of promoters buying back assets at a discount). It is being looked at,” a top government official told ET.The changes may be introduced as early as the next session of Parliament. “We are examining it. An amendment to the law could be introduced in the next session of Parliament,” another top government official said.

 Close Watch

The ministry of corporate affairs is closely looking at the pros and cons of the issue as a number of cases have been taken up for resolution.“All options are being looked at,” said a MCA official adding that there are differing views. The government is keeping a close watch on the progress in cases that are up for resolution as the IBC is a nascent law.

State Bank of India chief Rajnish Kumar had last week said that legally the existing promoters are “within their rights to participate” in the resolution process.The Insolvency and Bankruptcy Board of India (IBBI) has recently amended regulations governing corporate insolvency resolution process to ensure that as part of due diligence prior to approval of a resolution, the antecedents, credit worthiness and credibility of a resolution applicant, including promoters, are taken into account by the Committee of Creditors.
Banks are looking at ways to at least stop wilful defaulters and those who have been involved in wrongdoing. To participate in the resolution process, bidders should not be wilful defaulters and they should be cleared in a forensic audit that should declare that they have not diverted funds from the company.
But some government officials feel that without legislative backing, banning promoters on the basis of these regulations may not be enough. A government official told ET that there are countries that bar incumbent promoters from participating in the resolution process once they declare bankruptcy, so such a legislative restriction would not be without precedent.
Once the government reaches a final decision on the matter, an amendment could be introduced soon.
The current law allows independent resolution professionals (IRPs) to invite prospective lenders, investors and other interested parties to present resolution proposals, which means that even the corporate debtor undergoing bankruptcy can put forward a plan.
The Economic Times, New Delhi, 14th November 2017

Comments

Popular posts from this blog

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

RBI rushes in to prop up falling rupee

RBI rushes in to prop up falling rupee India’s central bank reportedly intervened in the currency markets on Monday to prevent a further slide in the local unit, which breached the 67 mark to a dollar for the first time in 15 months amid a widening trade gap and runaway import bills fuelled by high crude-oil prices. Some state-owned banks were seen selling dollars aggressively, interventions that market dealers attributed to the central bank’s strategy to stem the decline of the Indian rupee against the US currency. The rupee is the worst performing among a dozen Asian monetary units in the past three months. It lost 4.25 per cent to the dollar during the period, show data from Bloomberg. On Monday, the Reserve Bank of India (RBI) is said to have sold about Rs 800 million collectively on the spot and exchange traded futures markets, dealers said. An email sent to RBI remained unanswered until the publication of this report. The currency market has seen such a strong central bank interven…

GST Refund of Rs 20,000 Cr Pending: Exporters’ Body

GST Refund of Rs  20,000 Cr Pending: Exporters’ Body Refund of over Rs 20,000 crore on account of Goods and Services Tax (GST) is pending with the government with more than half the amount stuck as input tax credit, Federation of Indian Export Organisations said on Tuesday. While claims over Rs7,000 crore were cleared in March, the amount was Rs 1,000 crore in April.However, after exporters’ request, the GST council and tax department are organizing a second phase of Special Refund Fortnight starting May 31, which will enable exporters to draw their refunds at a speedy pace. Many exporters have been unable to file the refund of input tax credit due to technical glitches, exports and claim happened in different months. The major challenge lies on ITC refund especially because the process is partly electronic and partly manual which is cumbersome and add to the transaction cost, the exporters’ body said. On IGST, refunds are getting delayed due to airline and shipping companies not submitt…