IBBI discussion paper: Two-part resolution plan to ensure swift takeover of a stressed firm by the winning bidder

New Delhi: The insolvency regulator has proposed a "two-part resolution plan" to ensure swift takeover of a stressed firm by the winning bidder to keep it as a going concern without hiccups or delay, which, in turn, will prevent asset value erosion.

In a discussion paper, the Insolvency and Bankruptcy Board of India (IBBI) has said the first part of the proposed rescue deal will enable the National Company Law Tribunal (NCLT) to approve the resolution plan giving control to the acquirer so that the sick firm can quickly resume or accelerate its operations.

The second part, it said, should deal with the usually-contentious issue of the distribution of resolution proceeds among various stakeholders. Given that the distribution often leads to litigation and delays the resolution process, separating the two critical parts of the rescue plan will, therefore, ensure the sick firm doesn't sink further, the regulator reckons.

Under the extant system, the resolution plan has to be approved in one part and in its entirety.

So, the first part will include the resolution amount and the terms of the plan and its implementation schedule, among others. The second part will stipulate how the plan has dealt with the interests of all stakeholders and the payments to be made to them against their admitted claims.

The new proposal, the IBBI said, aims to "streamline the resolutions and prevent delay in the implementation of the resolution plan". The paper dated November 1 also proposes to make it mandatory for the committee of creditors (CoC), which decides on resolution plans for bankrupt firms, to hold meetings at least once a month to review progress. It noted that in several cases, they haven't held regular meetings, delaying decision-making involving the rescue plans.

It has proposed that dissenting financial creditors should be entitled to lower claim of resolution amount or liquidation value.