While it is a fact that the Insolvency and Bankruptcy Code (IBC) is still in its early days and, in a sense, is still evolving, it is time some ground rules are laid out.
While it is a fact that the Insolvency and Bankruptcy Code (IBC) is still in its early days and, in a sense, is still evolving, it is time some ground rules are laid out. One of these has to be the disqualification of late bids for stressed companies because it takes away from the sanctity of the deadline for submitting bids. It is indeed a pity that Tata Steel needed to knock on the doors of the Supreme Court to protest against the tribunals entertaining late bids. What’s worse, the SC on Friday refused the company an early hearing. This is an undue punishment for a company that has diligently stuck to the deadline and gives competitors an unfair advantage because the contents of the early bids invariably find their way into the public domain.
If there are investors who have submitted their proposals for a particular bankrupt company, then, these need to given priority. If for some reason, these investors are found to be ineligible or their proposals not financially up to the mark, other proposals can be called for after a quick decision is taken on ineligibility. It is indeed surprising that some benches of the NCLT (National Company Law Tribunals) are entertaining bids—way after the deadline—for stressed assets. If the tribunals believe the process is not efficient, it needs to be changed and new rules put in place.
There are those that have suggested a telecom spectrum-like auction process where continuous bidding takes place over several days and bidders get to match the last bid till such time they wish to. The problem with this is that proposals for stressed assets aren’t about only the funds; the quality of the bid depends also on the time period over which the capital will be infused, especially how much will be brought in upfront to pay off the banks. It is quite possible that one party offers to bring in a larger sum of money, but if this is to be brought in over a much longer time horizon, this might not suit the bankers. The other way to do it would be to first consider the proposals that have come in before the deadline expires and then give others, who have submitted a bid, time to better it.
Some of the recent amendments to the IBC will help the process. For instance, amending Section 29(A) to enable pure-play financial entities, such as PE funds, to participate in the bidding process should help enlarge the pool of buyers and also fetch the banks a better price. Moreover, with the minimum voting threshold for the Committee of Creditors (CoC) lowered to 66%, from 75%, for key decisions, and to 51% from 75% for routine decisions, the process should move faster. Amongst the next set of changes should be one that bars the tribunals from considering late bids.