Insolvency rules tweaked to maximise bid value, period of restructuring cut

Restructuring time for stressed assets reduced by 15 days

The insolvency regulator has amended rules to prevent low bidding for stressed assets being restructured through the National Company Law Tribunal (NCLT). Through a notification, the Insolvency and Bankruptcy Board of India also virtually shortened the period for resolution professionals to present a resolution plan to NCLT from the present 270 days to 255 days. 

To prevent low bids, the regulator said two valuers will determine the liquidation value and the fair value of a company being restructured.

Earlier, in one of the resolution cases, it was found that the valuation done by the valuer was incorrect. As a result, the resolution professional was changed and he appointed a new valuer. 

Also, now neither the fair value nor the liquidation value will be known to bidders. The rationale is that bidders were making offers around the liquidation value as it was known to them.

Liquidation value is usually less than fair value and is arrived at by assuming assets of the companies are sold in parts. Fair value is the most probable price that a company or an asset would bring in a competitive and open market.

The changed rules now say that while both the values will be disclosed to the committee of creditors, there will be confidentiality about these values so that these are not disclosed to bidders.

“The resolution professional and registered valuers shall maintain confidentiality of the fair value and the liquidation value,” the rules said.

“The government now wants bidders to make realistic bids. So only the committee of creditors under a confidentiality clause will know the liquidation and fair value,” said a resolution professional.

Lenders had earlier pressed for a fair value to be done in some cases to prevent bidding around liquidation value. Among the Reserve Bank of India-mandated 12 cases, it was done for Bhushan Power & Steel.

Also, the timeline of presenting a resolution plan will now get shortened. Currently, 180 days are given after NCLT clears a case to resolution professionals, extendable by 90 days. As such, total 270 days are given for submission of the plans. However, now the resolution professionals will have to submit the resolution plan before the NCLT 15 days before the expiry of the maximum period. 

“Effectively, we now have 255 days to file the application, earlier it was 270 days,” another resolution professional said.

Other amendments are aimed at bringing more transparency to the insolvency process. 

The amendments say that the committee of creditors has to specify the amounts to be given to the creditors who have not agreed to the resolution plans. The committee also has to specify the sources of these funds to the dissenting lenders.

New prop
 

• Fair value along with liquidation value to be presented to the committee of creditors

• Earlier only liquidation value was to be presented to the committee of creditors

• Valuation details not to be presented to bidders so that they stop making offers around liquidation value