Allow defaulters in resolution plans: Companies, industry associations
, ET Bureau|
Dec 13, 2017, 08.18 AM IST
MUMBAI: Companies, private equity funds and industry associations have suggested that the government ease curbs on promoters bidding for companies that face insolvency proceedings, provided they are not classified as wilful defaulters.
One recommendation is to give the committee of creditors the discretion to allow defaulters to participate in resolution plans, provided the lenders can establish that they are not wilful defaulters and were affected by external factors, two senior officials from the banking circle said, asking not to be identified.
The other proposal is to allow micro, small and medium enterprises to bid jointly with non-promoters, even if they have not cleared their dues, provided they are not classified as wilful defaulters.
The government amended the Insolvency and Bankruptcy Code (IBC) in the third week of November to bar wilful defaulters from bidding for their own companies and allow other defaulters to bid provided they regularise their loan accounts. Borrowers classified as defaulters less than a year from the time the company was admitted to bankruptcy court can participate in the resolution plan without regularising their accounts, according to the revised rules.
The move to keep promoters out created an uproar among lenders, who anticipated they would have to settle for a lower recovery amount.
They also feared the development could lead to liquidation in many cases because non-promoters may not be passionate about saving the company on the block.
The government, on the other hand, was of the view that promoters responsible for the current state of affairs should be punished rather than regain control of the company that may be handed over to them with steep haircuts taken by banks.
The officials said a group of investors including private equity funds, senior lawyers representing companies and senior bankers discussed the amendment in the IBC Act and made a few suggestions last week. Borrowers had been taken aback by the amendment, which came into effect after banks referred 11 large cases including Essar Steel, Jaiprakash Infratech and Bhushan Steel to the National Company Law Tribunal.
The group suggested to the finance ministry that promoters in many cases failed to pay their loans on time due to reasons such as delays in getting environmental clearance or availability of coal.
In such cases, the committee of creditors could permit a defaulter to participate in the resolution plan. Another option suggested was to give promoters a chance to participate if there is only one bid for the company. The Union Cabinet passed an ordinance on November 22 to introduce the changes to the IBC and the bill is set to be introduced in the winter session of Parliament in the third week of December. Lenders, burdened with Rs 8.4 lakh crore of bad loans, want to recover every penny and are waiting for clarity on the resolution process.
One recommendation is to give the committee of creditors the discretion to allow defaulters to participate in resolution plans, provided the lenders can establish that they are not wilful defaulters and were affected by external factors, two senior officials from the banking circle said, asking not to be identified.
The other proposal is to allow micro, small and medium enterprises to bid jointly with non-promoters, even if they have not cleared their dues, provided they are not classified as wilful defaulters.
The government amended the Insolvency and Bankruptcy Code (IBC) in the third week of November to bar wilful defaulters from bidding for their own companies and allow other defaulters to bid provided they regularise their loan accounts. Borrowers classified as defaulters less than a year from the time the company was admitted to bankruptcy court can participate in the resolution plan without regularising their accounts, according to the revised rules.
The move to keep promoters out created an uproar among lenders, who anticipated they would have to settle for a lower recovery amount.
They also feared the development could lead to liquidation in many cases because non-promoters may not be passionate about saving the company on the block.
The government, on the other hand, was of the view that promoters responsible for the current state of affairs should be punished rather than regain control of the company that may be handed over to them with steep haircuts taken by banks.
The officials said a group of investors including private equity funds, senior lawyers representing companies and senior bankers discussed the amendment in the IBC Act and made a few suggestions last week. Borrowers had been taken aback by the amendment, which came into effect after banks referred 11 large cases including Essar Steel, Jaiprakash Infratech and Bhushan Steel to the National Company Law Tribunal.
The group suggested to the finance ministry that promoters in many cases failed to pay their loans on time due to reasons such as delays in getting environmental clearance or availability of coal.
In such cases, the committee of creditors could permit a defaulter to participate in the resolution plan. Another option suggested was to give promoters a chance to participate if there is only one bid for the company. The Union Cabinet passed an ordinance on November 22 to introduce the changes to the IBC and the bill is set to be introduced in the winter session of Parliament in the third week of December. Lenders, burdened with Rs 8.4 lakh crore of bad loans, want to recover every penny and are waiting for clarity on the resolution process.
