IBBI move on part sale of stressed firms to boost recovery: Analysts | The Financial Express

IBBI move on part sale of stressed firms to boost recovery: Analysts

The Insolvency and Bankruptcy Board of India (IBBI) has allowed administrators and creditors of stressed firms to invite bids for individual assets of the company if they don’t receive any resolution plan for the entity as a whole in the first instance.

IBBI move on part sale of stressed firms to boost recovery: Analysts
Recovery for financial creditors from the resolution of toxic assets has remained far below par in recent quarters.

The insolvency regulator’s latest stipulation on the part sale of toxic assets in select cases will help resolve stress faster, possibly leading to better recovery for lenders, analysts said.

The Insolvency and Bankruptcy Board of India (IBBI) has allowed administrators and creditors of stressed firms to invite bids for individual assets of the company if they don’t receive any resolution plan for the entity as a whole in the first instance. It has also provided for firming up a strategy for the marketing of stressed assets to a wider and targeted pool of potential suitors.

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Recovery for financial creditors from the resolution of toxic assets has remained far below par in recent quarters. It stood at just 10.7% of their admitted claims in the June quarter, having barely improved from a record low of 10.2% between January and March.

The regulator has also allowed a longer time-frame for the asset to be in the market, as the invitation for expression of interest has now been advanced to the 60th day from the insolvency commencement date.

In a bid to reduce delay, often blamed for the erosion of the value of stressed assets and consequent poor recovery, the IBBI has enabled creditors to examine whether they want to explore the option of ‘compromise or arrangement’ — a restructure option under the Companies Act. In such cases, they can seek this option from the tribunal while applying for a liquidation order.

Yogendra Aldak, partner at Lakshmikumaran and Sridharan Attorneys, said the IBBI’s fourth amendment regulation will “enable prospective resolution applicant to make reasoned decision while submitting resolution plan as all such information will be easily available without investing much time and efforts”. He added: “Further, importance is given on value maximisation by allowing resolution professional and committee of creditors to invite resolution plans for second time…”

Anoop Rawat, partner (Insolvency & Bankruptcy) at Shardul Amarchand Mangaldas & Co, said,

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“The provision for improvement of quality of information memorandum is a step towards giving greater visibility of the standing and status of corporate debtor.” Further, the amendments have also relaxed the timeline for preparation of the information memorandum. “This will ensure better information symmetry in the market by enhancing both quality and depth of information collated by the resolution professional (RP) in the additional 40 days provided to him,” Rawat said.

Jyoti Prakash Gadia, managing director at Resurgent India, said, the amendments will “facilitate and widen the market for attracting new investors, depending on nature and utility of the assets offered under the resolution process”.

The time lines for various stages of the processes involved have also been rationalised. This is a “step in the right direction, keeping in view the need to take a comprehensive view of each transaction”, Gadia said.

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