New amendments to bankruptcy code look to boost returns of stressed assets

Insolvency resolution professionals (RP) and committees of creditors (CoC) may request a resolution plan for the second time to sell parts of a borrower’s assets in cases where no plan is received as a whole, according to amendments introduced last week.

The changes to the Insolvency and Bankruptcy Board of India (IBBI) enable a resolution plan to include the sale of one or more assets of a borrower to one or more successful resolution plan applicants.

IBBI has made changes to allow assets to be marketed for better value. Details of the assets would be displayed prominently to enable a wider audience for the resolution plan. “The amendment also enables a longer time for the asset in the market as the invitation for expression of interest in Form G has been advanced to 60th day from the insolvency commencement date,” said a statement from the IBBI on September 17. 

IBBI had invited comments from the stakeholders to suggest if parts of stressed assets could be sold off instead of as a whole.

Anoop Rawat, partner, Insolvency & Bankruptcy, Shardul Amarchand Mangaldas & Co, said one challenge for the insolvency resolution process has been the lack of interest from investors. “The IBBI has taken a positive step by explicitly inserting an enabling provision aimed at greater marketing of the assets to prospective investors,” he said.

The amendments also relaxed the timeline for the preparation of the information memorandum, keeping in mind the practical problems faced by the resolution professionals in information collation.

The information memorandum contains specific information about the borrower and their assets. The new rules give RPs 40 days more to collect information. “This will ensure better information symmetry in the market by enhancing both quality and depth of information collated by the resolution professional,” Rawat said.

Aimim to reduce delays in the insolvency process further, the new rules paved the way for the CoC to examine whether it wants to explore options of compromise or arrangement for the borrower and liquidate the stressed assets.

According to IBBI, 1,703 Corporate Insolvency Resolution Processes ended in liquidation till June this year. The processes took an average of 428 days to be completed.

“Sometimes an entity is not interested to take over all the assets of the corporate debtor keeping in view the financial stakes. Resultantly, the committee of creditors does not receive any resolution plans which, therefore, leads to the liquidation of the corporate debtor. This piecemeal sale may help the resolution process and may help the creditors to receive some part of their claim if not all,” said Ruby Singh Ahuja, Senior Partner at Karanjawala & co.

The amended regulations are effective from September 16, 2022.