Skip to main content

Resolution plans under IBC may need approval of fewer lenders.

By
Resolution plans under IBC may need approval of fewer lenders.
The government is debating whether to lower the approval threshold for resolution plans under the Insolvency and Bankruptcy Code (IBC) in a move aimed at preventing too many insolvent companies from going into liquidation.More than 75% of creditors currently have to agree to a resolution plan, implying that just over 26% can reject it and force a company into liquidation.
The government feels liquidation should be the last resort and is considering whether such plans can be approved by a two-thirds majority or even a simple majority."There is a need to relook at the current majority requirement. Just 26% members cannot take a company to liquidation," said a senior government official, who didn't want to be named. "We are seeing it as an issue."
Many companies that have gone into liquidation could have continued to function under a less rigorous regime, some in the government feel.According to Section 30(4) of the IBC, "The committee of creditors may approve a resolution plan by a vote of not less than 75% of voting share of the financial creditors."
The Hyderabad bench of the National Company Law Tribunal (NCLT) recently cleared a resolution plan approved by 66.67% of the Committee of Creditors.The government feels such a lower limit could be provided in the law as liquidation yields a lower value for assets and also leads to jobs losses due to closure.
Experts said the government will have to clarify whether it means majority by number or value."In most cases, the small lenders simply follow the SBI, which has maximum exposure to the loan," one said. "If the value of the company is not realised, then the IBC process is irrelevant." As India's largest lender, State Bank of India is typically the largest creditor.
A year since IBC was introduced, the government is still in the process of fine-tuning resolution procedures.A 14-member IBC law committee formed to identify issues that may impact efficiency of corporate insolvency resolution will submit its recommendations before the end of February.
Ministry of Corporate Affairs (MCA) officials recently met bankers, chairman and managing directors, resolution professionals to discuss delays in approvals, demands for stamp duty exemption for transfer of insolvent companies, and forest clearance among other subjects
An extension of 60 days is likely to be announced soon for completing the bankruptcy resolution process. The extension of 60 days will be provided only to the companies currently under insolvency resolution. The current law allows a maximum 270 days for resolution — an initial 180 and 90 days of extra time on top of that.
The Economic Times, New Delhi, 29th January 2018

Comments

Post a Comment

Popular posts from this blog

RBI deputy governor cautions fintech platform lenders on privacy concerns during loan recovery

By
  India's digital lending infrastructure has made the loan sanctioning system online. Yet, loan recovery still needs a “feet on the street” approach, Swaminathan J, deputy governor of the Reserve Bank of India, said at a media event on Tuesday, September 2, according to news agency ANI.According to the ANI report, the deputy governor flagged that fintech operators in the digital lending segment are giving out loans to customers with poor credit profiles and later using aggressive recovery tactics.“While loan sanctioning and disbursement have become increasingly digital, effective collection and recovery still require a 'feet on the street' and empathetic approach. Many fintech platforms operate on a business model that involves extending small-value loans to customers often with poor credit profiles,” Swaminathan J said.   Fintech platforms' business models The central bank deputy governor highlighted that many fintech platforms' business models involve providing sm
Post a Comment
Read more

Credit card spending growth declines on RBI gaze, stress build-up

By
  Credit card spends have further slowed down to 16.6 per cent in the current financial year (FY25), following the Reserve Bank of India’s tightening of unsecured lending norms and rising delinquencies, and increased stress in the portfolio.Typically, during the festival season (September–December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. This is a reversal of trend in the past three financial years stretching to FY21 due to RBI’s restrictions.In the previous financial year (FY24), credit card spends rose by 27.8 per cent, but were low compared to FY23 which surged by 47.5 per cent. In FY22, the spending increased 54.1 per cent, according to data compiled by Macquarie Research.ICICI Bank recorded 4.4 per cent gross credit losses in its FY24 credit card portfolio as against 3.2 per cent year-on-year. SBI Cards’ credit losses in the segment stood at 7.4 per cent in FY24 and 6.2 per cent in FY23, the rep
Post a Comment
Read more

India can't rely on wealthy to drive growth: Ex-RBI Dy Guv Viral Acharya

By
  India can’t rely on wealthy individuals to drive growth and expect the overall economy to improve, Viral Acharya, former deputy governor of the Reserve Bank of India (RBI) said on Monday.Acharya, who is the C V Starr Professor of Economics in the Department of Finance at New York University’s Stern School of Business (NYU-Stern), said after the Covid-19 pandemic, rural consumption and investments have weakened.We can’t be pumping our growth through the rich and expect that the economy as a whole will do better,” he said while speaking at an event organised by Elara Capital here.f there has to be a trickle-down, it should have actually happened by now,” Acharya said, adding that when the rich keep getting wealthier and wealthier, they have a savings problem.   “The bank account keeps getting bigger, hence they look for financial assets to invest in. India is closed, so our money can't go outside India that easily. So, it has to chase the limited financial assets in the country and
Post a Comment
Read more