Insolvency hit stressed assets: Genuine players to benefit from ban on wilful defaulters; here is how

By: | Published: November 25, 2017 5:23 AM

Keeping the assets of stressed companies out of bounds for wilful defaulters won’t depress the valuation of the assets as it will help crowd in genuine players, MS Sahoo, chairman of the Insolvency and Bankruptcy Board of India (IBBI) said on Friday.

MS Sahoo, Insolvency and Bankruptcy Board of India, Wilful defaulters, stakeholders, stressed companies,  corporate debtor, corporate insolvencyThe official said the concerns that disqualifying certain unscrupulous elements from bidding for stressed companies will dampen the valuation of such enterprises are exaggerated and unsubstantiated.

Keeping the assets of stressed companies out of bounds for wilful defaulters won’t depress the valuation of the assets as it will help crowd in genuine players, MS Sahoo, chairman of the Insolvency and Bankruptcy Board of India (IBBI) said on Friday. “I strongly believe that a corporate debtor would be handed over to the most deserving people that would also ensure a genuine and time-bound implementation of the resolution plan, which is in the interest of all stakeholders,” he told FE. An ordinance promulgated by the government on Thursday brought about sweeping changes to the Insolvency and Bankruptcy Code (IBC), 2016: Wilful defaulters, dubious promoters and other unscrupulous elements have been barred from acquiring stressed companies, with a view to ensuring efficient and timely resolution of corporate insolvency. According to Sahoo, “Going forward, the best use of the IBC will be not to use it at all. The inevitable consequence of a resolution process that a property and the management of a corporate debtor vests in a third party, who would bring in behavioural changes, is discouraging the debtors from committing defaults.”

Separately, allaying fears that any move to bar errant promoters or other dubious elements will expose the insolvency ecosystem to a litany of litigations, a senior government official said that disqualification will, in fact, enforce strict discipline in all promoters and discourage them from committing defaults in future for fear they may lose control of their companies forever once the insolvency resolution process is initiated. The official said the concerns that disqualifying certain unscrupulous elements from bidding for stressed companies will dampen the valuation of such enterprises are exaggerated and unsubstantiated.

In fact, keeping such elements out will attract genuine players and result in the transfer of such assets to the deserving candidates. Thursday’s ordinance effectively disqualifies most of the promoters of over 300 stressed companies, including 11 of the dozen large bad debt accounts recommended by the central bank where the insolvency resolution process has been initiated from acquiring assets of such firms.  Also barred are those whose accounts have been classified as non-performing assets for at least a year, among others. In fact, such defaulting promoters can bid for their companies only after they clear the overdue amounts with interests and other charges.

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