Skip to main content

IBBI amends rules, drops need to disclose liquidation value of asset

IBBI amends rules, drops need to disclose liquidation value of asset
The Insolvency and Bankruptcy Board of India (IBBI) has done away with the requirement for disclosing the liquidation value of an asset undergoing resolution—a move that is expected to help better price discovery for stressed assets under the bankruptcy framework.IBBI amended its regulations on 31 December and the changes took effect from Monday.
The regulator also said that a resolution plan needs to identify the specific sources of funds that will be used to pay the liquidation value to creditors who don’t agree to the plan. “Since the liquidation value was previously included in the information memorandum, prospective bidders who had access to the same were providing bids which were closer to the liquidation value rather than a value (based) on a going concern basis.
This amendment was necessary and will help in optimal price discovery for assets and reduce haircuts for lenders,” said Aashit Shah, a partner at law firm J Sagar Associates. The information memorandum is a document prepared by the resolution professional which gives bidders access to information such as the financial position of the debtor and disputes the debtor is involved in.
Sumit Binani, a resolution professional, said investors or buyers had been using liquidation value as the guiding price while submitting bids. “In most cases, bids were close to the liquidation value. This move is positive. In cases where information memorandum is already shared, this amendment may not alter anything as far as values are concerned.
But it is definitely positive for cases from here on,” he said. Lenders are in the middle of finalizing resolution plans for 11 of the 12 accounts that were referred to the National Company Law Tribunal for early insolvency proceedings following the Reserve Bank of India’s directive in June 2017.
The central bank followed this with a second list of 28 accounts, accounting for Rs2 trillion in bad loans, in late August. Here, the lenders were mandated to firm up a resolution plan by 13 December, failing which they were forced to take these defaulters to NCLT. Of the second list, 25 firms will be put through insolvency proceedings. In a few cases, lenders have already filed petitions at NCLT.
To be sure, the interim resolution professional will still have to derive the liquidation value of an asset, which has to be shared with the members of committee of creditors only after the receipt of resolution plans. To do so, the IRP has to obtain an undertaking from the members that they shall not disclose the liquidation value and not use it to cause undue gain or loss.
IBBI also defined dissenting financial creditors as those who voted against or abstained from voting for a resolution plan approved by the creditor committee. According to the amendment, a resolution applicant must submit bids within the time stated in the invitation for the resolution plans. “This will enable the committee of creditors to close a resolution process as early as possible subject to provisions in the Code and the regulations,” the IBBI said in a statement. “On the timelines, bidders were often submitting plans beyond the stated timelines.
And since IRPs are mandated to share all plans with the committee of creditors, it was creating confusion and delaying the process. This directive of the IBBI will now ensure that only plans which are submitted within time stated in the expression of interest will be taken up for approval,” said Binani

The Mint, New Delhi, 03rd January 2018

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…