IBC changes to maximise value, ease resolution

Mumbai: The recent changes to insolvency and bankruptcy code could lead to value maximisation in the resolution process, as it provides better flexibility through corporate restructuring like mergers, amalgamation and demergers, says MS Sahoo, Chairman, Insolvency and Bankruptcy Board of India.

Under the new rule, resolution plan could provide for restructuring the company, including merger, amalgamation and demerger.  “This flexibility would enable the market to come up with more innovative resolution plans for value maximisation,” Sahoo said in an interview to Financial Chronicle.

Talking about the functioning of the code, Sahoo said, “the code, even in its short span, has shown extraordinary dynamism in addressing many of the pressing concerns on resolving corporate insolvency for the benefit of the stakeholders and economy at large.”

“With the new changes, the stakeholders will be able to take decisive commercial decisions leading to innovative resolutions, ensuring value maximisation,” he further said.

The code envisages closure a corporate insolvency resolution in a time-bound manner as undue delay is likely to reduce the value of the company making its revival difficult, he said.

“There are several cases where the resolution process are continuing even after expiry of 270 days as it got into legal tangle, frustrating time bound resolution,” Sahoo pointed out.

And this issue has been addressed by making it mandatory for the resolution to be completed within 330 days, including any extension on account of legal proceedings, the chairman said.

It further provides that an ongoing resolution cases which have not been closed yet within 330 days, should be completed within next 90 days.

Another major change is to deal with the voting impasse. In fact, the code provides for an authorised representative (AR) to represent a class of financial creditors and to vote in respect of each financial creditor (FC) in the committee of creditors (CoC), but there were practical difficulties to secure votes when the CoC has FCs scattered across the country,” Sahoo said.

In order to address this issue, changes are made in the rules where an AR shall vote for the FCs he represents in accordance with the decision taken by the class with more than 50 per cent voting share of the FCs, who have cast their votes, he said.

The amendment introduces Regulation 39C, which mandates the committee to recommend to the liquidator to explore the option of selling off the business of the corporate debtor as a going concern under the relevant regulations of the Liquidation Regulations.

The sale of business as a going concern includes a sale of all the assets and liabilities of the company to the highest bidder.

The committee shall identify and group the assets and liabilities which ought to be sold as a going concern, based on the commercial considerations of the transaction.