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Last Updated : Nov 23, 2017 08:44 PM IST | Source: Moneycontrol.com

Promoters with NPAs of a year or more barred from bidding in insolvency process

President Ram Nath Kovind on Thursday gave consent to an ordinance for amending the Insolvency and Bankruptcy Code.

Beena Parmar @BeenaParmar

Promoters of large stressed accounts or bad loans, many of which are being resolved under the Insolvency and Bankruptcy Code (IBC), may no longer be allowed to bid for their own assets.

In a set of amendments listed in a government ordinance to the Insolvency and Bankruptcy Code and cleared by the President of India on Thursday, those companies whose loan accounts have been non-performing for a year or more will not be allowed to participate or bid to buy the assets in the resolution plan. Those who have not have settled overdue amounts on the said accounts will also not be permitted, said a provision within the amendments.

The newly introduced provisions indicate that promoters of companies on at least the first list of 12 large cases already referred to the insolvency courts would not be allowed to bid.

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The 12 accounts in the first list include Essar Steel, Bhushan Steel, Bhushan Power and Steel, Monnet Ispat and Energy, Electrosteel Steels, Lanco Infratech, Alok Industries, Amtek Auto, Jyoti Structures, Era Infra Engineering, Jaypee Infratech and ABG Shipyard.

Among these, the promoters of the now most notorious case of Essar Steel — the Ruias — are trying to get back control of their firms by bidding in the sale process under insolvency along with five other bidders.

Debt_Dirty (3)

“The Ordinance aims at putting in place safeguards to prevent unscrupulous, undesirable persons from misusing or vitiating the provisions of the Code. The amendments aim to keep out such persons who have wilfully defaulted, are associated with non-performing assets, or are habitually non-compliant and, therefore, are likely to be a risk to successful resolution of insolvency of a company,” the ordinance statement said.

Also read: SBI Chairman says, I don't mind some haircut but don't want to go bald

According to Section 29A, which has been added to the code, the following categories of entities will be disallowed:

# Willful defaulters

# Those who have their accounts classified as non-performing assets for one year or more and are unable to settle their overdue amounts including interest thereon and charges relating to the account before submission of the resolution plan.

# Those who have executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor undergoing a corporate insolvency resolution process or liquidation process under the Code

# Connected persons to the above, such as those who are promoters or in management of control of the resolution applicant, or will be promoters or in management of control of corporate debtor during the implementation of the resolution plan, the holding company, subsidiary company, associate company or related party of the above referred persons.

Kalpesh Mehta, Partner at Deloitte, said, "This was mainly to protect the bankers as borrowers could use this as a tool to push banks to take a haircut and get benefit and buy it back. Basically, the ordinance is not to renegotiate your existing borrowings and only use it (IBC) for the purpose of a genuine revival or resolution for an insolvency process and not for a willful defaulters."

The provisions also explicitly obligate the CoC (committee of creditors) to consider feasibility and viability of the Resolution Plan before giving its approval. Those flouting these amended provisions would be subject to punishment, which is a fine not less than Rs 1 lakh and can extend to Rs 2 crore.

In June, the RBI had identified 12 large accounts, which made up 25 percent of the banking system’s total gross non-performing assets or NPAs (which are at about Rs 8 lakh crore), and asked banks to refer these for resolution under the IBC.

It then came out with a second list with another 30-40 companies. The RBI has given banks until December. to try and come up with a resolution plan, failing which these firms, too, must be taken to bankruptcy court.
First Published on Nov 23, 2017 05:03 pm
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