M&As to increase under insolvency code: Sahoo

Insolvency and Bankruptcy Board of India Chairperson M S Sahoo said on Saturday mergers and acquisitions might increase under the code governing the sale of assets of companies unable to repay debt.

The Insolvency and Bankruptcy Code has been in the news since the Reserve Bank of India issued directions to banks to initiate the insolvency process for the top 12 non-performing accounts in the country. Sahoo, addressing an Assocham event, said rules for cross-border insolvency and bankruptcy were being worked out by the board.

“The IBC has put the commercial aspects in hands of stakeholders and judicial aspects with tribunal and with all that it has put a timeline with firm consequences,” Sahoo said.

Meanwhile, an official of the ministry of corporate affairs said more Benches and members would be joining National Company Law Tribunal (NCLT). Earlier, State Bank of India (SBI) chairman Arundhati Bhattacharya had said more benches have to be created by NCLT to deal with dispute resolution under IBC.

A number of ways are allowed for resolution under the insolvency process, one of which is the acquisition of a debt-laden company by another firm during a 180day moratorium. Once a case is admitted by the NCLT, an interim resolution professional is appointed. They issue an advertisement calling for bids for a target company. Insolvency professionals claim though acquisitions haven’t taken place in the past six months, there is a lot of scope for it. Under the insolvency process, once acquisition is initiated, only statutory approval from the NCLT is required for the completion of the deal.

Some insolvency professionals said in acquisitions triggered by the insolvency process, buyers might negotiate to acquire a company without the liabilities.

Sahoo said the IBC was one way to sort out the non-performing assets problem. Unsecured creditors are also likely to benefit, as now they can also stake claim or recover their dues by taking a debtor to the NCLT. Banks might also want to find acquirers for debt-laden, as they would be reluctant to take a haircut, said insolvency professionals.

Sahoo told reporters later though rules for a fast-track resolution process have been laid down, no case has yet been filed under this provision. The fast-track resolution process was formulated to help small companies, including start-ups exit, without difficulty.

As opposed to 180 days in case of regular insolvency proceedings, the fast-track route allows for a wrap-up in 90 days, with an extension of 45 days.

“The IBC has put the commercial aspects in hands of stakeholders and judicial aspects with tribunal and with all that it has put a timeline with firm consequences,” Sahoo said