NO ACCESS TO LIQUIDATION VALUE FOR BIDDERS: IBBI

MUMBAI:THE Insolvency & Bankruptcy Board of India (IBBI) has done away with the requirement for disclosing the liquidation value of an asset undergoing resolution—a move that is expected to help better price discovery for stressed assets under the bankruptcy framework.

IBBI amended its regulations on December 31 and the changes took effect from Monday. The regulator also said that a resolution plan needs to identify the specific sources of funds that will be used to pay the liquidation value to creditors who don’t agree to the plan. “Since the liquidation value was previously included in the information memorandum, prospective bidders who had access to the same were providing bids which were closer to the liquidation value rather than a value (based) on a going concern basis. This amendment was necessary and will help in optimal price discovery for assets and reduce haircuts for lenders,” said Aashit Shah, a partner at law firm J Sagar Associates.

The information memorandum is a document prepared by the resolution professional giving bidders access to information such as the financial position of the debtor and disputes the debtor is involved in.

Sumit Binani, a resolution professional, said investors or buyers had been using liquidation value as the guiding price while submitting bids.

“In most cases, bids were close to the liquidation value. This move is positive. In cases where information memorandum is already shared, this amendment may not alter anything as far as values are concerned. But it is definitely positive for cases from here on,” he said. Lenders are in the middle of finalising resolution plans for 11 of the 12 accounts that were referred to the National Company Law Tribunal for early insolvency proceedings following the Reserve Bank of India’s directive in June.

The central bank followed this with a second list of 28 accounts, accounting for ₹2 lakh crore in bad loans, in late August. Here, the lenders were mandated to firm up a resolution plan by December 13, failing which they were forced to take these defaulters to the NCLT.

The interim resolution professional (IRP) will still have to derive the liquidation value of an asset, which has to be shared with the members of committee of creditors only after the receipt of resolution plans. To do so, the IRP has to obtain an undertaking from the members that they shall not disclose the liquidation value and not use it to cause undue gain or loss.