Tag: IBC

IBC to get welcome cross-border teeth, BFSI News, ET BFSI

Banking & Finance

[ad_1]

Read More/Less


The government’s reported move to adopt a legal framework for cross-border insolvency resolution is welcome. It would enlarge the scope for debt recovery, provide comfort to foreign investors and improve the ease of doing business here. In a rapidly globalising economy, the impact of any business failure transcends national boundaries. An insolvent debtor can have assets and creditors in more than one country.

Rightly, India wants to adopt the UNCITRAL Model Law of Cross Border Insolvency, 1997, aligning with global practice. It will enable foreign creditors to start or participate in insolvency proceedings in India, sell or attach assets of the debtor to recover their loans. Similarly, Indian creditors will receive assistance from other countries that have adopted this model law. Any incentive to create assets overseas to escape domestic creditors would disappear. The UN model law gives precedence to domestic proceedings and protection of public interest. It also fosters cooperation between domestic and foreign courts and insolvency professionals. India’s draft legal framework, to be a part of the Insolvency and Bankruptcy Code (IBC), excludes banking and financial services, as well as pre-packs for small businesses.

The draft distinguishes between foreign main proceedings and foreign non-main proceedings to determine the level of control that a jurisdiction has over the insolvency resolution process, and the extent of relief that the National Company Law Tribunal can grant. NCLT’s adjudication capacity must be beefed up, if it has to work on par with foreign counterparts. Lenders (read Indian banks) too must act swiftly at the first sign of distress to prevent other, foreign, creditors from initiating insolvency proceedings.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , ,

Overseas assets of defaulters, guarantors may soon be within lenders’ reach, BFSI News, ET BFSI

Banking & Finance

[ad_1]

Read More/Less


FILE PHOTO: An India Rupee note is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration/File Photo

Lenders may soon be able to lay their hands on overseas assets of defaulting firms and personal guarantors.

The government has proposed adopting a global model law that will enable lenders to apply the Insolvency and Bankruptcy Code to defaulters’ assets lying overseas. These will include the offshore personal assets of the promoter if they have issued a personal guarantee. The changes would also allow the execution of orders against defaulters by overseas courts that have adopted the model law.

The model law is provided by the UNCITRAL — a subsidiary body of the United Nations.

The government has invited public comments on the proposed modifications by December 15.

The model law lays down the basic framework for cooperation between domestic and foreign courts and domestic and foreign insolvency professionals.

Personal guarantors

In the case of a personal guarantor, their ‘habitual’ place of residence will be taken into account to decide the jurisdiction where the main bankruptcy proceedings will happen. Debt recovery tribunals and the National Company Law Tribunal (NCLT) benches and their appellate tribunals are platforms where overseas creditors could initiate or participate in proceedings against personal guarantors in India.

The introduction of a cross-border insolvency law in the IBC, that is in line with international best practices and suitable for the Indian context, may be beneficial to all stakeholders. Draft part Z, as recommended by the insolvency law committee, is under consideration for enactment,” the ministry said, while proposing the additional measures regarding personal guarantors.

The changes were proposed after the ILC, constituted under the corporate affairs ministry to review the implementation of the IBC, noted the lack of a framework for cross-border insolvency. The government has decided to put in place a comprehensive framework for this purpose based on UNCITRAL model law on cross-border insolvency, which could be made a part of the IBC by inserting a separate chapter for this purpose.

In January 2020, the government had constituted a crossborder insolvency rules/regulations committee to recommend subordinate legislation.

Banks have approached the National Company Law Tribunal for invoking personal guarantees of promoters of 17 defaulting companies.

The defaulting promoters include those of Punj Lloyd, Amtek Auto, ABG Shipyard, Videocon, Varun Shipping, and Lanco, according to reports.

Armed with a Supreme Court order, banks are looking to invoke personal guarantees of tycoons from Venugopal Dhoot to Kapil Wadhawan to recover unpaid loans from their delinquent firms

The guaranteed debt

According to an estimate, the top 10 personal guarantors have guaranteed debt of over Rs 1.6 lakh crore. Among the big names, former promoters of Bhushan Steel and Power Sanjay Singhal and his wife Aarti Singhal had furnished personal guarantees worth up to Rs 24,550 crore to take loans from a consortium of bank led by State Bank of India.

The former promoter of Reliance Communications, Anil Ambani, has also given a personal guarantee against the loan taken. Erstwhile promoter Wadhawan stands guarantee to loans taken by DHFL, which is sitting on debt of about Rs 90,000 crore, while Dhoot has also given a personal guarantee to a portion of Rs 22,000 crore loan to Videocon.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , , , ,

PM Modi, BFSI News, ET BFSI

Banking & Finance

[ad_1]

Read More/Less


Underlining the reforms made by the Centre to improve the financial health of banks, Prime Minister Narendra Modi on Thursday said the banking sector of India is currently in a major milestone phase that can give a great push to the country’s economy.

Addressing the concluding session of the conference on “Creating Synergies for Seamless Credit Flow and Economic Growth” Prime Minister Modi said, “The reforms made by the government in the banking sector in the last 6-7 years led the banking sector of the country towards a very strong position today. The financial health of banks is now in a much-improved condition. We brought reforms like IBC, reformed many laws, empowered Debt recovery tribunal.”

He said a dedicated Stressed Asset Management Vertical was also formed in the country during the COVID period.

“We have found ways to solve problems and challenges that were there before 2014. We addressed the problem of Non-Performing Assets (NPA). We recapitalized the banks and increased their strength. Today the capacity of the banks of India has increased so much that they can play a great role in giving new energy and a great push to the economy of the country and making it self-reliant. I consider this phase as a major milestone in the banking sector of India,” he added.

The Prime Minister further said banks should adopt the model of partnership leaving the traditional approver-applicant system.

The two-day conference is being organised by the Ministry of Finance from November 17. The conference has been attended by top officials from Ministries, Banks, Financial institutions and Industry representatives. (ANI)



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , ,

No objection certificate from IT dept not required for voluntary liquidation: IBBI

Banking & Finance

[ad_1]

Read More/Less


Insolvency regulator IBBI has clarified that an Insolvency Professional (IP) handling voluntary liquidation process will not be required to seek any No Objection Certificate (NOC) or No Due Certificate from the Income Tax department for compliance with any such process.

Th position was laid down in a circular by the Insolvency and Bankruptcy Board of India (IBBI) which held that the process of applying such NOC/NDC from the IT Department is time-consuming and defeats the objective of time-bound completion of process under the Insolvency and Bankruptcy Code (IBC), the IBBI said.

Currently, the voluntary liquidation regulations mandates the liquidator to make the public announcement within five days office appointment, calling for submission of claims by stakeholders within 30 days from the liquidation commencement date. The regulations also obligate all the financial creditors, operational creditors including government and other stakeholders to submit their claims within the specified period. If the claims are not submitted in time, the corporate person may get dissolved without dealing with such claims and such claims may consequently get extinguished.

It has been noticed that even after providing an opportunity for filing of claims, the liquidators seek NOC/NDC from the income tax department despite the fact that the code or the regulations do not envisage seeking such NOC/NDCs.

Experts’ take

Yogendra Aldak, Partner, Lakshimkumaran and Sridharan Attorneys, said “It brings necessary assurance to the stakeholders and makes sure that the stakeholders are not required to comply with a procedure not contemplated under the Code.”

Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas and Co, said “ Negating the practice of seeking a NOC/NDC from the IT department would operationally ease the process of voluntary liquidation. The liquidators can strike off this requirement from their checklist of obligations.”

Maneet Pal Singh, Partner, I.P. Pasricha & Co, said that in recent times we have seen that the objective of time-bound completion of liquidation process gets defeated primary due to the process of obtaining NOC from the Income Tax Department by the Insolvency Professional since that consumes substantial amount of time against the express provisions of the Insolvency and Bankruptcy Code, 2016.

“In order to tackle the same, the IBBI clarified that an Insolvency Professional handling voluntary liquidation process is not required to seek any NOC from the Income Tax Department and with this we believe that the process will be handled smoothly in a time bound manner”, Singh said.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , ,

RBI wants open offer exemption for ARCs buying bad assets from banks, BFSI News, ET BFSI

Banking & Finance

[ad_1]

Read More/Less


The Reserve Bank of India has sought open offer exemption from capital markets regulator Securities and Exchange Board of India (Sebi) for equity stake purchases by Asset Restructuring Companies (ARCs).

Under the current Takeover Code rules, commercial banks and public financial institutions are exempt from making an open offer if they acquire shares beyond a threshold by invoking a pledge. ARCs acquire loans that qualify as non-performing assets from banks.

Banks sell bad loans to an ARC for a lower price and cut losses. In this process, all the collateral that was pledged in favour of the bank will be transferred to ARC.

If the collateral exceeds 25% of the total equity of the company, then such pledge invocation will need the ARC to give an open offer to the minority investors.

Takeover code

Sebi’s takeover code is triggered when an entity acquires over 25% stake in a listed company. At this point, the acquirer has to declare an open offer and buy at least 26% more stake from public shareholders.

Until 2019, the open offer exemption was available to all classes of investors undertaking debt restructuring. In 2019, Sebi changed the rules because RBI dissolved all the debt restructuring schemes and instead all the liquidation was being done through the Insolvency and Bankruptcy Code (IBC).

Market participants say the open offer requirement also slows down the resolution process since a lot of minority shareholders would view it as their last chance to cash in on the shares of a company that is most probably going to be liquidated.

Revised norms

In 2018, the RBI revised norms for bad loan resolution. Until then, banks were allowed to recast the corporate debts by converting their debt into equity.

In February 2018, the central bank phased out the debt restructuring schemes and made it mandatory for banks to refer all bad loans to the IBC process after a specific timeline. This circular of RBI prompted Sebi to revise its rules.

The RBI is mulling easier rules for ARCs. Earlier this month, an expert panel led by former RBI executive director Sudarshan Sen submitted its report to the central bank aimed at simplifying regulations for these financial institutions.

What Sudarshan Sen panel says

In the interest of debt aggregation, the scope of Section 5 of the SARFAESI Act, and other related provisions, may be expanded to allow ARCs to acquire ‘financial assets’ as defined in the Act, for the purpose of reconstruction, not only from banks and ‘financial institutions’ but also from such entities as may be notified by the Reserve Bank.

Reserve Bank may consider permitting ARCs to acquire financial assets from all regulated entities, including AIFs, FPIs, AMCs making investment on behalf of MFs and all NBFCs (including HFCs) irrespective of asset size and from retail investors.

ARCs should be allowed to sponsor SEBI registered AIFs with the objective of using these entities as an additional vehicle for facilitating restructuring/ recovery of the debt acquired by them.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , , , ,

GN Bajpai-led panel wants IBBI to set up dashboard for insolvency data, BFSI News, ET BFSI

Banking & Finance

[ad_1]

Read More/Less


Former Sebi chairman G N Bajpai-led working group has suggested designing a national dashboard for insolvency data, saying ”reliable real-time data” is essential to assess the performance of the insolvency process under the IBC.

The panel also said the IBBI has made commendable efforts in publishing quarterly data on the insolvency resolution process in detail. The data published by the Insolvency and Bankruptcy Board of India (IBBI), a key institution in implementing the Code, include those on insolvency filings, recovery amount and duration of the insolvency process across corporate debtors for all creditors. In its report, the group said that cross-validation of data sourced from multiple data banks is a challenge in making credible assessments.

The Insolvency and Bankruptcy Code (IBC), which provides for a time-bound and market-linked resolution of stressed assets, has been in force for more than five years now.

The objectives

The six-member group said in a report that resolution of the distressed asset remains the first objective of the Insolvency and Bankruptcy Code (IBC), followed by promotion of entrepreneurship, availability of credit and balancing the interests of stakeholders. “This order of objectives is sacrosanct,”
it said.

The working group on tracking outcomes under the Code has suggested a framework based on ‘Effectiveness, Efficiency and Efficacy’ with respect to Corporate Insolvency Resolution Process (CIRP).

Another suggestion is for the IBBI to look at including quantitative data on cost indicators such as court/bankruptcy authority fees, resolution professional’s fees and asset storage and preservation costs in its quarterly updates.

The report noted that data on time, cost and recovery rates will allow a reliable evaluation of the insolvency process with respect to parameters of effectiveness and efficiency.

The indicators

Further, the report said it was important to track the performance of related economic indicators to assess the performance of the insolvency process for other objectives such as ‘promoting entrepreneurship’ or ‘enhancing credit availability.

Such an assessment would measure the performance of the system with respect to the ‘efficacy’ parameter.

”The WG (Working Group) recommends a range of indicators such as the number of new companies registered, credit supply to stressed sectors like real estate, construction, metals etc, change in the cost of capital (particularly for stressed sectors), the status of non-performing loans, employment trends, size of the corporate bond market and investment ratio for the related sectors,” it added.

This is the second report in recent months after a parliamentary standing committee had suggested changes to the code in August.

In August, a 29-member standing committee headed by former minister of state for finance Jayant Sinha, and including former prime minister Manmohan Singh, said that low recovery rates with haircuts as much as 95% and 71% of the cases pending beyond the 180-day time frame envisaged by the law pointed towards a deviation from the original objective of the code.

The key recommendations of the committee include setting up specialised National Company Law Tribunal benches to hear only IBC matters, establishing professional code of conduct for committee of creditors, strengthening the role of resolution professionals and digitalising IBC.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , ,

Ten steps for overhaul of ARCs as competition for bad bank arrives, BFSI News, ET BFSI

Banking & Finance

[ad_1]

Read More/Less


In a bid to streamline the functioning of asset reconstruction companies (ARCs), a Reserve Bank committee has come out with a host of suggestions including the creation of an online platform for the sale of stressed assets and allowing ARCs to act as resolution applicants during the IBC process.

Amortise loss

To incentivise lenders to sell their financial assets to ARCs at an early stage of stress, the RBI panel has recommended a dispensation to lenders, on an ongoing basis, to amortise the loss on sale, if any, over a period of two years. To optimise upside value realisation by lenders, it recommends a higher threshold of investment in security receipts (SRs) by lenders, below which provisioning on SRs held by them may be done on the basis of Net Asset Value (NAV) declared by the ARC instead of IRACP norms.

Online platform

An online platform may be created for sale of stressed assets and infrastructure created by the Secondary Loan Market Association (SLMA) may be utilised for this purpose. For all accounts above Rs 500 crore, two bank-approved external valuers should carry out a valuation to determine the liquidation value and fair market value and for accounts between Rs 100 crore to Rs 500 crore, one valuer may be engaged. Also, the final approval of the reserve price should be given by a high-level committee that has the power to approve the corresponding write-off of the loan.

Acquiring financial assets

In the interest of debt aggregation, the scope of Section 5 of the SARFAESI Act, and other related provisions, may be expanded to allow ARCs to acquire ‘financial assets’ as defined in the Act, for the purpose of reconstruction, not only from banks and ‘financial institutions’ but also from such entities as may be notified by RBI. RBI may consider permitting ARCs to acquire financial assets from all regulated entities, including AIFs, FPIs, AMCs making investment on behalf of MFs and all NBFCs (including HFCs) irrespective of asset size and from retail investors. ARCs should be allowed to sponsor SEBI registered AIFs with the objective of using these entities as an additional vehicle for facilitating restructuring/ recovery of the debt acquired by them.

Binding on lenders

If 66% of lenders (by value) decide to accept an offer by an ARC, the same may be binding on the remaining lenders and it must be implemented within 60 days of approval by majority lenders (66%). 100% provisioning on the loan outstanding should be mandated if a lender fails to comply with this requirement. Given that the debt aggregation is typically a time-consuming process, the planning period is elongated to one year from the existing six months. In cases where ARCs have acquired 66% of debt of a borrower, the Act should provide for two years of moratorium on proceedings against the borrower by other authorities. The Act should also provide that Government dues including revenues, taxes, cesses and rates due to the Central and state governments or local authority will be deferred in such cases.

Equity sale

For better value realisation for originators and enhancing the effectiveness of ARCs in recovery, even the equity pertaining to a borrower company may be allowed to be sold by lenders to ARCs which have acquired the borrower’s debt. The Committee recommends that ARCs may be allowed to participate in the IBC process as a Resolution Applicant either through a SR trust or through the AIF sponsored by them.

Allowing HNIs to buy SRs

For giving impetus to listing and trading of SRs, the list of eligible qualified buyers may be further expanded to include HNIs with minimum investment of Rs 1 crore, corporates (Net Worth-Rs 10 crore & above), all NBFCs/ HFCs, trusts, family offices, pension funds and distressed asset funds with the condition that (a) defaulting promoters should not be gaining access to secured assets through SRs and (b) corporates cannot invest in SRs issued by ARCs which are related parties as per SEBI definition.

Minimum SR investment

The interest of investors and investing lenders should be weighed against the need for distribution of risk among the willing investors. Therefore, it recommends that for all transactions, per SR class/ scheme, the minimum investment in SRs by an ARC should be 15% of the lenders’ investment in SRs or 2.5% of the total SRs issued, whichever is higher.

Credit rating agencies

Recognising the critical role of Credit Rating Agencies (CRAs) in the valuation of SRs and, therefore, the need for continuity in engagement of CRAs, the Committee recommends that ARCs must retain a CRA for at least three years. In case of change of a CRA, both parties must disclose the reason for such change.

Tax pass through

In the matter related to taxation of income generated from investment in SRs issued by ARCs, the possibility of a ‘pass-through’ regime for AIF investors may be looked into by the Central Board of Direct Taxes (CBDT). The CBDT may consider clarifying on the tax rate applicable to FPIs.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , , , ,

IBC needs a stronger push: Crisil

Banking & Finance

[ad_1]

Read More/Less


The Insolvency and Bankruptcy Code (IBC) needs a stronger push after recovery of about ₹2.5 lakh crore over five years since it took effect, according to Crisil Ratings.

From here, reforms must stress quicker resolution and maximise recovery, the credit rating agency said in a study.

Per the agency: “A closer look at the data shows, however, the recovery rate and resolution timelines have a lot more room for improvement.

“This makes a continuous strengthening of the Code and stabilisation of the overall ecosystem imperative.”

Lesser traction

As of June 30, 2021, IBC had enabled recovery of about ₹2.5 lakh crore, against admitted financial claims of about ₹7 lakh crore, translating to a recovery rate of 36 per cent for the 396 cases resolved out of the total 4,541 admitted.

Of the remaining cases, 1,349 were under liquidation; 1,114 were closed under appeal/ review/ settled or withdrawn, and 1,682 were outstanding.

The agency emphasised that the recovery marks a significant shift in the insolvency resolution process and credit culture in India.

Gurpreet Chhatwal, Managing Director, Crisil Ratings, said: “The recent resolution of a large financial services firm with a recovery of about ₹37,000 crore against admitted financial claim of about ₹87,000 crore, translating to a recovery rate of about 43 per cent, underscores the efficacy of IBC. The resolution value was about 1.4 times the liquidation value.”

The agency underscored that while the IBC has tilted the power equation in favour of creditors from debtors and helped strengthen India’s insolvency resolution ecosystem, its performance against its twin objectives – maximisation of recovery and timebound resolution – has been a mixed bag.

“One, only a few large cases have seen higher recovery. Excluding the top 15 cases (by resolution value) from the 396 resolved cases, the recovery rate halves to 18 per cent.

“Two, average resolution time for the aforementioned resolved cases is 419 days compared with the stipulated maximum of 330 days. About 75 per cen of outstanding cases have already been pending for more than 270 days,” the study said.

Liquidation: a challenge

Nitesh Jain, Director, Crisil Ratings, noted that besides low recovery rate and longer timeframe, a key challenge is the high number of cases going to liquidation.

“As of June 30, 2021, nearly one-third of the 4,541 admitted cases had gone into liquidation, with a recovery rate estimated at merely 5 per cent.

“That said, around three-fourths of these cases were either sick or defunct. With closure of these vintage cases, recovery rate as well as timelines are expected to improve,”he said.

Notwithstanding these challenges, the IBC has played a key role in resolution of stressed assets so far, according to the study.

“Its effectiveness will continue to be tested given the elevated level of stressed assets in the Indian financial system,” it added.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , ,

Will Srei firms head for bankruptcy after RBI supersedes boards?, BFSI News, ET BFSI

Personal Finance

[ad_1]

Read More/Less


The Reserve Bank of India‘s move to supersede the boards of Srei group firms may see the companies head for the National Company Law Tribunal for corporate insolvency resolution under the IBC.

Most banks favour DHFL-type resolution for the group. However, the move may be opposed by Srei promoters, who have submitted a proposal to pay the full amount to banks under a scheme filed under Section 230 of the Companies Act 2013 in October 2020.

What Srei says

“We are shocked by the RBI’s move as banks have been regularly appropriating funds from the escrow account they have controlled since November 2020. Moreover, we have not received any communications from banks on any defaults,” Srei group said.

“The question of IBC does not arise because we have already submitted a debt realignment plan which has been accepted by some creditors. The plan involves paying every creditor their entire dues in a structured manner over time. in the past 10 months, the banks have collected Rs 3,000 crore through the TRA account. Hence, we are already repaying our loans. So the question of default does not arise. As banks had control over the company’s cash flow, we could not pay any other creditors. Nevertheless, the matter is sub-judice since it is with the tribunals and counts,” Srei had said. according to a report.

Srei Group was in talks for a debt realignment and lenders were waiting for the outcome of an ongoing forensic audit to take a call on debt realignment.

Related party lending?

In FY2020, RBI audit had flagged Rs 8,576 crore of probable related-party lending by Srei group.

“We had submitted a proposal to pay the full amount to banks under a scheme filed under Section 230 of the Companies Act 2013 in October 2020. However, they have neither accepted the scheme nor proposed a payment schedule acceptable to them. Banks have been controlling the company’s cash flow since November 2020. Almost Rs 3000 crore has been collected by them, out of which they have been disbursing to themselves, Srei said.

The loans

Srei Infrastructure, and its subsidiary Srei Equipment Finance, together owe lenders and debenture holders a total of Rs 30,000 crore. Kolkata-based UCO Bank is the lead lender, with more than Rs 2,000 crore of exposure. State Bank of India (SBI)’s exposure to the group is also more than Rs 2,000 crore.

The bank loans have turned non-performing assets after the end of the September quarter.

The company had earlier announced that Arena Investors, Makara Capital and others had evinced interest to invest in the company to the tune of Rs 2,200 crore. The company had formed a strategic coordination committee to coordinate, negotiate and conclude discussions with the investors.

The suitors

Till date, it received expressions of interest from 11 investors and has signed non-disclosure agreements with nine of them. Two Investors — Makara and Arena — had submitted non-binding term sheets indicating their intent for investment.

Srei Infrastructure, which is a listed entity, reported a net loss of Rs 971 crore in the June quarter as against Rs 23 crore net profit in the year ago period as provisions on loans rose nearly seven times to Rs 439 crore over the same period as repayment collections were hit due to the impact of the Covid 19 pandemic.

“The appointment of the administrator by the RBI paves the way for the corporate resolution process of the two Srei entities. Once the NCLT approves the same, the board of directors of these entities will stand suspended. A moratorium will be imposed on any proceedings against these entities, enforcement of any security or transfer of assets.

The CIRP will enable foreign creditors, including ECB lenders and bond holders to restructure their debts alongside domestic creditors. If a resolution plan is successfully approved under the CIRP, it will allow the companies to start on a clean slate, which is missing under the RBI stressed assets framework. This decision of RBI follows on the heels of a successful resolution process of DHFL,” Aashit Shah, Partner, J Sagar Associates, said.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , ,
1 2 3 … 8