New Year brings hope to companies facing insolvency proceedings

With the government taking a considerate stance while amending the IBC law, there seems to be enough leeway for prudent promoters to be able to bid for their company's assets. The amends allow a defaulter or existing promoter to become eligible for the resolution plan by making their bad loans operational.
 

The Insolvency and Bankruptcy Code (Amendment) Bill, 2017 aims to empower banks and lenders by preventing defaulting promoters from misusing the provisions of the IBC, 2016. The bill passed by the Lok Sabha on Friday follows an ordinance that was introduced in November to make wilful defaulters and rogue promoters of non-performing assets ineligible to offer a resolution plan for their company. According to the amendment, defaulting promoters will now have to first make their bad loans operational by paying up their overdue with interest before submitting their resolution plan.
 

Given the importance of the role a promoter can play in reviving an ailing company, the government seems to have taken the accommodative stance. Although classified NPA assets by the banks, the companies assets have inherent value and are essentially productive assets, if turned around. Excluding promoters would do a disservice to the insolvency proceedings which primarily is a way to find the right value for the distressed assets. Experts believe that if the promoters team up with prospective bidders, especially foreign investors, they can better drive a company toward a turnaround.

Meanwhile, last week, Bank of Baroda failed in an attempt to sell bad loans amounting to Rs. 2,300 crore due from Bhushan Steel and Essar Steel. Experts believe that the reserve price set by the lender was above market rates and only overseas investors and private equity funds were allowed to bid.Essar Steel owes close to Rs. 45,000 crore to lenders. Earlier, the Essar Group which is keen to bid for its assets in Essar Steel was planning to pay its dues to lenders so that it can take part in the resolution plan. On the other hand, state-owned steel major SAIL is keen on acquiring the stressed assets of Essar Steel and Bhushan Steel.

 
Recently, Binani Cement, which was referred to the National Company Law Tribunal (NCLT) under the IBC in mid-2017 received an aggressive response from UltraTech Cement, Shree Cement and asset investment fund of Piramal Enterprises and Bain Capital Credit.

Although the banks have missed RBI's December-end deadline to resolve debt of Essar Steel, Bhushan Steel, Electrosteel and Monnet Ispat, with the amendment of the IBC allowing genuine promoters, the New Year is expected to speed up the process of debt resolution.