M&As to increase under insolvency code, says IBBI chief M S Sahoo

Sahoo said that the IBC was one way to sort out the non-performing assets problem

Insolvency and Bankruptcy Board of India (IBBI) Chairperson M S Sahoo said on Saturday mergers and acquisitions might increase under the code governing the sale of assets of companies unable to repay debt.

The Insolvency and Bankruptcy Code (IBC) has been in the news since the Reserve Bank of India issued directions to banks to initiate the insolvency process for the top 12 non-performing accounts in the country. Sahoo, addressing an Assocham event, said rules for cross-border insolvency and bankruptcy were being worked out by the board. 

A number of ways are allowed for resolution under the insolvency process, one of which is the acquisition of a debt-laden company by another firm during an 180-day moratorium. 

Once a case is admitted by the National Company Law Tribunal (NCLT), an interim resolution professional is appointed. They issue an advertisement calling for bids for a target company.

Insolvency professionals claim through acquisitions haven’t taken place in the past six months, there is a lot of scope for it. Under the insolvency process, once the acquisition is initiated, only statutory approval from the NCLT is required for the completion of the deal.

Some insolvency professionals said in acquisitions triggered by the insolvency process, buyers might negotiate to acquire a company without the liabilities.

Sahoo said the IBC was one way to sort out the non-performing assets problem. Unsecured creditors are also likely to benefit, as now they can also stake the claim or recover their dues by taking a debtor to the NCLT.

Banks might also want to find acquirers for debt-laden, as they would be reluctant to take a haircut, said insolvency professionals.  

Sahoo told reporters later though rules for a fast-track resolution process have been laid down, no case has yet been filed under this provision. The fast-track resolution process was formulated to help small companies, including start-ups exit, without difficulty.

As opposed to 180 days in case of regular insolvency proceedings, the fast-track route allows for a wrap-up in 90 days, with an extension of 45 days.

Another option for an insolvent company is liquidation of assets. If the assets are liquidated, the money recovered is distributed among creditors. Financial creditors like banks and financial institutions would be the first to get their dues.