IBBI proposes new norms for illiquid assets

Public auction of non-realisable assets can now be allowed

With most corporate insolvency cases landing in a longdrawn liquidation process, the Insolvency and Bankruptcy Board of India (IBBI) has proposed amending the liquidation regulations through assignment of not readily realisable assets for any amount the market is willing to pay through public auction to third parties.

The IBBI has said that if auction is not possible, the assignment — transferring the rights and obligation of an asset — may be done by the liquidator. The IBBI has proposed that the amount received be distributed among stakeholders to close the liquidation process. The liquidators can be provided the right to assign certain statutory rights of action, such as avoidance transaction and contingent claims to third parties.

“The proposed amendment will benefit stakeholders involved in the liquidation process by providing them with an additional option of exit at an earlier stage,” said a discussion paper by the IBBI.

The insolvency board said in a discussion paper that this would reduce the time taken for completion of the liquidation process and result in higher recovery for stakeholders. The overall insolvency data shows that 53 per cent of corporate insolvency resolution processes (CIRPS) resulted in liquidation, against 14 per cent, which ended with a resolution plan. Nearly half the ongoing liquidations have crossed the one-year deadline.

The IBBI expects the market for such assets to develop, which, in turn, will lead to better price discovery and provide greater business and employment opportunities through assignees. “The proposal is also in the interests of equity, as stakeholders, having a right on the liquidation estate, will get their dues,” said the IBBI.

According to experts, such a market does not exist in India and the IBBI will have to work out many details before its launch. In the event of liquidation, creditors with low financial capacity or those in the process of cleaning their balance sheet may be interested in getting their dues instantly, albeit at a discounted value, rather than waiting for a longer period to receive a higher payout. The assignment of debt by a creditor under liquidation process to a third party, with greater financial capacity, may lead to improvement in allocation of resources in the economy, said the IBBI.

While the initiation of CIRP remains suspended for defaults arising from March 24 for six months, 76 new cases from previous defaults were admitted. Of the 55 cases which got closure, 24 ended in liquidation during the quarter.

Activity around the Insolvency and Bankruptcy Code saw a dip of over 96 per cent over last year, in terms of total cases admitted during the April-june quarter.