Corporate rescue under IBC to see near 50% jump this fiscal
under IBC will see a sharp jump. The path has been cleared for this by the Supreme Court, when it upheld the constitutional validity of insolvency resolution of personal guarantors last November, the person added.
Meanwhile, the number of corporate turnaround plans approved so far this year has gone up from about 42 in the June quarter to more than 80 in each of the September and December quarters, data available from IBBI showed.
“Increasingly, resolution plans which do not have too much complexity are being cleared proactively in several benches,” said Anoop Rawat, partner (insolvency and bankruptcy) at law firm Shardul Amarchand Mangaldas & Co. “Infusing similar efficiency in admission of cases will help in making IBC more effective in addressing distress in the corporate sector.”
Experts said capital and efficient management are key elements of the revival of stressed assets under IBC, but many strategic investors that are looking to buy stressed assets face the challenge of finding a suitable asset due to key information not being available.
Most prospective resolution applicants, who are not already informed about the company, will not be able to form a view on whether to submit an expression of interest (EOI) in response to the information in Form G (invitation for EOI), explained Vishwas Panjiar, Partner, Nangia Andersen Llp, a business advisory firm.
Panjiar said it is also important to address doubts about the definition of secured creditors. In the Gujarat state tax officer vs Rainbow Papers Ltd case, the Supreme Court in September 2022 interpreted the definition of ‘secured creditor’ to hold that any government or governmental authority shall be a secured creditor as the charge created by a statutory law can be considered as a ‘security interest’.
In January last year, the corporate affairs ministry captured the essence of ‘security interest’ in a discussion paper as the result of a consensual transaction between parties and not any interest created through mere operation of a statute.
“A clear legislative intent is required towards clearing these doubts. If the law is tentative on such a key matter, it would not evoke confidence enough to get the requisite resolution applicants to come and take over a sick company,” said Panjiar.
Experts said banks should exercise caution when resorting to IBC, as its primary purpose should not be misconstrued as a mere debt recovery mechanism.