Bank­ruptcy reg­u­la­tor tight­ens rules on res­cue plan ap­provals

Pro­mot­ers, any other party sub­mit­ting turn­around plan will face strin­gent test of cred­it­wor­thi­ness, cred­i­bil­ity

Mint Asia ST - - News - BKY OMAL G U P TA , G IREESH C HANDRA A LEKH A NGRE & P RASAD

Pro­mot­ers propos­ing turn­around plans for their sink­ing com­pa­nies will be sub­jected to a strin­gent test of cred­it­wor­thi­ness and cred­i­bil­ity, ac­cord­ing to changes in rules in­tro­duced by the bank­ruptcy reg­u­la­tor on Tues­day, 7 Novem­ber.

The same test will be ap­pli­ca­ble to any other party sub­mit­ting a res­cue plan for such com­pa­nies.

The In­sol­vency and Bank­ruptcy Board of In­dia (IBBI) said on Tues­day, 7 Novem­ber, it has amended its reg­u­la­tions to en­sure that while clear­ing a turn­around plan, lenders take into ac­count the back­ground, credit wor­thi­ness and cred­i­bil­ity of the party, in­clud­ing pro­mot­ers, as part of their due dili­gence.

The turn­around pro­fes­sional ap­pointed to put to­gether a vi­able re­vival plan for the com­pany has to spec­ify in the scheme de­tails re­gard­ing the back­ground of the pro­moter or any other party propos­ing a re­vival scheme.

These in­clude any con­vic­tions, dis­qual­ifi- cations, crim­i­nal pro­ceed­ings, cat­e­go­riza­tion as wil­ful de­faulter and any de­bar­ment by the cap­i­tal mar­kets reg­u­la­tor.

The de­tails should also in­clude any trans­ac­tion with the de­fault­ing com­pany in the pre­vi­ous two years.

“The lat­est amend­ment in in­sol­vency reg­u­la­tions only re­minds the com­mit­tee of cred­i­tors and the res­o­lu­tion pro­fes­sional of their duty that they should take a con­sid­ered and in­formed de­ci­sion about the res­o­lu­tion plan tak­ing into ac­count the cred­i­bil­ity and track record of the res­o­lu­tion ap­pli­cant so that the as­sets/ com­pany goes into cred­i­ble hands,” said Su­mant Ba­tra, man­ag­ing part­ner of law firm Ke­sar Dass B. and As­so­ciates.

Un­der the In­sol­vency and Bank­ruptcy Code, debtors and cred­i­tors are sup­posed to agree to ei­ther re­vive the firm or liq­ui­date it in a time-bound man­ner.

Ac­cord­ing to R.sub­ra­ma­ni­aku­mar, man­ag­ing direc­tor and chief ex­ec­u­tive of In­dian Over­seas Bank, these steps will en­sure the sys­tem is not taken ad­van­tage of by peo­ple who are seek­ing a back­door en­try.

“The sys­tem is evolv­ing and the speed at which changes are be­ing taken will en­sure all time­lines for res­o­lu­tion are met,” said Sub­ra­ma­ni­aku­mar.

The IBBI state­ment said that the changes in reg­u­la­tions—ibbi (In­sol­vency Res­o­lu­tion Process for Cor­po­rate Per­sons) Res­o­lu­tion Process, 2016—man­date that res­o­lu­tion ap­pli­cants, in­clud­ing pro­mot­ers, are put to a strin­gent test with re­spect to their credit wor­thi­ness and cred­i­bil­ity.

“Fur­ther, it also im­poses greater re­spon­si­bil­ity on the res­o­lu­tion pro­fes­sional and com­mit­tee of cred­i­tors in dis­charg­ing their du­ties,” said the state­ment.

In June, Re­serve Bank of In­dia iden­ti­fied 12 ac­counts, mak­ing up 25% of gross bad loans in the sys­tem worth Rs7.7 tril­lion (ex­clud­ing re­struc­tured loans) for im­me­di­ate bank­ruptcy pro­ceed­ings.

In­dus­try ex­perts have ex­pressed con­cern over pro­mot­ers of de­fault­ing com­pa­nies try­ing to re­gain con­trol of these en­ti­ties. This is be­cause banks feared that pro­mot­ers re-gain­ing con­trol of a firm may raise doubts on the cred­i­bil­ity of the process.

On Mon­day, 6 Novem­ber, Ra­jnish Ku­mar, chair­man of State Bank of In­dia, said it is within the le­gal rights of pro­mot­ers to sub­mit res­o­lu­tion bids sub­ject to the con­di­tion that there has been no wrong­do­ing in terms of wil­ful de­fault or a fraud.

ko­mal.g@livemint.com

RBI has iden­ti­fied 12 ac­counts for im­me­di­ate bank­ruptcy pro­ceed­ings

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