New rules to facilitate bankruptcy resolution

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NEW DELHI : Rules changes introduced last week by the Insolvency and Bankruptcy Board of India (IBBI) are expected to strengthen regulatory oversight of the conduct of lenders deciding to bail out failed firms and speed up the resolution process, experts said.

The Creditors Committee and its members are expected to exercise their powers under the Bankruptcy Code in accordance with IBBI regulations, in accordance with changes to the “Insolvency Resolution Process for Legal Persons” regulations introduced on September 30 .

The amendments also limit to one each the number of modifications that the resolution professional hired by the panel of lenders is authorized to make to the document inviting investors to express their interest and, subsequently, to the resolution plan requests.

The changes are sure to make the rescue of bankrupt companies more organized, experts said. Delays in rescuing companies that find themselves in bankruptcy courts have been a major concern for policymakers, as a parliamentary panel recently pointed out.

Changes to Creditors Committees (CoC) regulations bring it into the regulatory fold of IBBI and may result in a more organized and regulated resolution process, thus increasing the credibility of the process, explained Divakar Vijayasarathy, founder and Managing Partner, DVS Advisors. LLP, a consulting firm.

“With the caps (on amending the call for expression of interest and request for resolution plans) in effect, we could see the resolution process complete within a reasonable time, thus increasing the sanctity of the process. ‘whole regulation,’ said Vijayasarathy.

One would expect an improvement in the corporate bankruptcy resolution process and its timelines, said Daizy Chawla, senior partner at the law firm Singh & Associates.

One important change introduced is the “challenge mechanism” whereby bidders will be given the opportunity to improve their plan if they wish, based on the resolution plan received from other resolution candidates, Chawla said.

“It will also reduce disputes filed with the contracting authority due to the clarity in place,” Chawla said.

Allowing candidates to improve their resolution plans is seen as an attempt to improve transparency and maximize value, Vijayasarathy said.

Improving the results and time taken to rescue bankrupt businesses is likely to make the bankruptcy code more effective.

The parliamentary standing finance committee headed by Bharatiya Janata party leader Jayant Sinha reported in August the delays in the bankruptcy settlement process. In its report tabled in Parliament, the committee said haircuts taken by lenders were as high as 95% in some cases and that more than 71% of cases were pending for more than 180 days.

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