Why SC making approved resolution plans binding under IBC is good news for lenders

#Business, #IBC, #Supreme Court

supreme court

An insolvency resolution plan cannot be withdrawn or modified after it is approved by a Committee of Creditors (CoC), the Supreme Court has ruled, delivering a shot in the arm to bankers struggling to resolve the cases of stressed corporate debtors under the Insolvency & Bankruptcy Code (IBC).

A submitted resolution plan is binding and irrevocable between the CoC and the successful resolution applicant, the court said on Monday, cheering CoCs and other stakeholders in the resolution process that tends to be a long-drawn-out process.

“Since the 330 days outer limit of the CIRP (corporate insolvency resolution proceedings) under Section 12(3) of the IBC, including judicial proceedings, can be extended only in exceptional circumstances, this open-ended process for further negotiations or a withdrawal, would have a deleterious impact on the Corporate Debtor, its creditors, and the economy at large as the liquidation value depletes with the passage of time,” a bench of justices D Y Chandrachud and M R Shah said

“A failed negotiation for modification after submission, or a withdrawal after approval by the CoC and submission to the Adjudicating Authority, irrespective of the content of the terms envisaged by the Resolution Plan, when unregulated by statutory timelines could occur after a lapse of time, as is the case in the present three appeals before us. Permitting such a course of action would either result in a downgraded resolution amount of the Corporate Debtor and/or a delayed liquidation with depreciated assets which frustrates the core aim of the IBC,” the bench said.

A submitted resolution plan is binding and irrevocable between the CoC and the successful resolution applicant in terms of the provisions of the IBC and the CIRP Regulations, the judges said.

The context

Ebix Singapore Private Limited had sought to withdraw the resolution plan it had submitted in 2018 and which had been approved by the CoC of Educomp Solution Limited, an educational services provider,

The National Company Law Tribunal (NCLT) had approved the withdrawal after repeated appeals by Ebix, but the National Company Law Appellate Tribunal (NCLAT) reversed the withdrawal.

The top court included appeals by two other companies while denying the buyer a chance to walk away from the Educomp Solutions sale. One of these was Seroco Lighting Industries Private Limited, whose appeal to modify its approved resolution plan for Arya Filaments Private Limited had been earlier dismissed by the NCLT.

The SC’s observations have to be seen against this backdrop: an average IBC case now takes 460 days or nearly 15 months for resolution. This is an improvement over the average time taken when the Code first came into existence — nearly 1600 days, or over four years, in 2017.

But even this improved resolution pace is a far cry from what the IBC initially envisaged – 180 days – for resolution of stressed companies and later stretched to 270 days, with 330 days being the “outer limit” for completing a resolution.

‘Value destruction’

There are multiple reasons for delays in the resolution of bankrupt companies but one big reason is the second thoughts that approved buyers begin to have after their bids have been voted on by the CoC and accepted.

One banker, who has been a member of several CoCs, told Moneycontrol that as resolution plans get delayed, the stressed company (also known as the corporate debtor loses customer confidence.

“And if a buyer walks away, this leads to value destruction for the corporate debtor.. I agree that in some cases, the buyer may be backing off for genuine reasons and one of these could be that the value of the corporate debtor has eroded because of inordinate delay in the process of approving the resolution plan. But if a buyer is allowed to walk away in one case, then everyone will come back to renegotiate and the sanctity of the entire resolution process will get destroyed”, the banker said on condition of anonymity.

She welcomed the SC’s stand, saying the CoCs were only keen on entertaining “serious bidders” in the first place so that the resolution process can be accelerated.

In the past, some big IBC cases have been delayed by buyers’ reluctance. Take the case of Amtek Auto Limited, which has been hanging fire since 2017; reports now suggest that after much back-and-forth, the prospective buyer may finally clinch a deal wherein lenders will still have to sacrifice more than 75%, after four years.

In the Bhushan Power & Steel Limited (BSPL) resolution too, delays took place because the buyer, JSW Steel Limited, was apprehensive about its own promoters getting embroiled in investigations by government agencies against promoters of the corporate debtor. BSPL was eventually taken over by JSW Steel this year.

Investigative hurdles

Besides inordinate delays and low levels of recovery for lenders, the IBC process has also been set back by action by investigative agencies such as the Central Bureau of Investigation and the Economic Offences Wing.

The banker quoted above said that investigative actions by government agencies should not hamper the resolution because, after a key amendment in the IBC, only the erstwhile promoters are now liable to be investigated. The corporate debtor remains insulated from the investigations.

To be sure, the SC’s stand that approved insolvency resolutions that are binding is a significant milestone in the five-year journey of IBC. At the same time, sector regulator Insolvency and Bankruptcy Board of India (IBBI) is trying to tie up other loose ends. It has released a discussion paper, for example, to regulate the all-power CoC by devising a code of conduct for creditors.

In the discussion paper, the IBBI has cited some cases for coming forward with the suggestion to regulate the CoC. It has cited the case of BSPL, where the resolution professional (RP) appointed for the company “colluded” with creditors to pay Rs 12 crore to a firm offering legal counsel.

A legal entity working with one of the lenders of fugitive Mehul Choksi’s firm Gitanjali Gems Limited even before the firm came up for bankruptcy resolution was paid 20 times the fee of the RP because of a prior understanding between the parties.

In the Sterling Biotech Limited resolution, “absconding and ineligible promoters” attempted to take over the company in the guise of a one-time settlement. This attempt was made after over 90% of the members of the CoC) formed for the case approved the takeover.

Internet Explorer Channel Network
News Related


Rural growth moderated in second quarter: HUL CMD Sanjiv Mehta

REUTERS/Danish Siddiqui Consumer demand in rural India, which was resilient since the onset of the pandemic, is now plateauing as the second wave of the pandemic wanes, Sanjiv Mehta, chairman ... Read more »

Here's why Democrats' proposed elimination of Roth conversions for the wealthy doesn't start until 2032

Photo by Mike Kline (notkalvin) | Moment | Getty Images House Democrats proposed a rule to forbid Roth conversions for the wealthy as part of a broad package of tax ... Read more »

Armenia, Russia agreed on gas price — Deputy PM

Gazprom is the sole gas supplier to Armenia Read more »

ACC Q3 Result | Profit rises to Rs 449 crore, revenue grows to Rs 3748.9 crore

acc ltd ACC, one of the top cement manufacturers in India and a subsidiary of Holcim Group, reported a consolidated profit after tax of Rs 449 crore for the quarter ... Read more »

PM's charm offensive yet to convince investors to part with their trillions

As the government bids to win over the richest international investors to its green agenda, Paul Kelso finds scepticism that the government means business despite a big energy partnership with Bill Gates. Read more »

Beer prices could jump by 30p per pint as pubs struggle with staff, energy and supply shortages

There are concerns that £6 a pint could become commonplace in pubs in London and the South East. Read more »

IMF cuts Asia's growth forecast, warns of supply chain risks

The International Monetary Fund on Tuesday slashed this year’s economic growth forecast for Asia and warned that a fresh wave of COVID-19 infections, supply chain disruptions and inflation pressures pose ... Read more »

Chennai Super Kings' win in IPL 14 to dial up Dhoni's brand value

MS Dhoni has invested in companies including Khatabook, Cars24, and RunAdam Sports. (Image: IPL/BCCI/Twitter) Cricketer MS Dhoni leading his team Chennai Super Kings (CSK) to fourth win in the Indian Premier ... Read more »

Travel and tourism industry resumes hiring, momentum to pick up from Q4

The travel and tourism sector, one of the worst affected by the pandemic-induced lockdown and resultant job losses, is seeing a revival in hiring. Following the lifting of travel restrictions, ... Read more »

HeidelbergCement India Q2 profit down 4.55% to Rs 59.56 crore

HeidelbergCement India Ltd on Tuesday reported a 4.55 per cent decline in its net profit to Rs 59.56 crore for the second quarter ended September 2021 on account of increased ... Read more »

Russian media watchdog expects removal of prohibited information from Twitter — official

"Sanctions applied against them led to their removal of more than 90% of prohibited information and just a little is left to achieve complete purity," head of the regulator Andrei Lipov said Read more »

Cabinet approves B92 bn more support measures

A sign announces that a shop is participating in the Kon La Krueng (Half-Half) co-payment scheme at the Chatuchak weekend market in Bangkok. (Photo: Pornprom Satrabhaya) The cabinet on Tuesday ... Read more »

ACC profit rises to Rs 449 crore, revenue grows to Rs 3748.9 crore in September quarter

acc ltd ACC, one of the top cement manufacturers in India and a subsidiary of Holcim Group, reported a consolidated profit after tax of Rs 449 crore for the quarter ... Read more »

Technical View: Nifty forms Bearish Engulfing pattern, experts say avoid buying the dip

The Nifty started off the day above 18,600 but failed to sustain the momentum due to selling pressure in FMCG, metals, pharma and some banking & financial stocks. The index ... Read more »

DCM Shriram Q2 profit up 33.2%; says business environment remains disruptive

DCM Shriram on Tuesday posted a 33.2 per cent increase in consolidated net profit to Rs 159 crore for the second quarter of 2021-22 on strong sales. The company’s net ... Read more »

WGC predicts strong demand for gold in India in 2022 provided there are no fresh Covid outbreaks

The World Gold Council (WGC) has said that though demand for gold may be more subdued than expected this year following India’s prolonged battle with COVID-19, in 2022 economic growth ... Read more »

Network 18 Media Q2 Result | Consolidated revenue rises 31% to Rs 1,387 crore

Representative image Network 18 Media & Investments on October 19 posted consolidated revenue of Rs 1,387.2 crore for the quarter ended September 30, 2021, against Rs 1,061 crore logged in ... Read more »

Demand slump and output rise hit cardamom price, hurt growers

Tepid domestic demand and a slowdown in exports owing to Saudi Arabian concerns over pesticide presence in Indian shipments have hurt trading in cardamom at a time when India is ... Read more »

Austrian, Russian ministers plan intergovernmental commission in Vienna for October 21

On the whole, it is planned to sign three agreements Read more »

Axis Bank to waive 12 EMIs on select home loans under festive offer

Axis Bank (Representative image) Private sector lender Axis Bank on Tuesday announced waiver of 12 EMIs on select home loan products, and discounts on various online purchases as part of ... Read more »

Trump Sets Up Huge Legal Fight To Keep White House Records Secret

Legal experts doubt that former President Donald Trump can succeed in a bid to block disclosure of records related to his actions and communications regarding the January 6 insurrection. © ... Read more »

Upcoming office supply likely to keep vacancies high, rents under pressure: Edelweiss Research

Office rentals remained stable across the major markets in India in Q2 2021. Progress on vaccination rollout and resumption of employees’ return to offices bode well for office demand but ... Read more »

Simply Save | Why it is important to make international investments across emerging and developed markets?

Investing in international funds has got much wider acceptance among mutual fund (MF) investors. AMFI data shows the number of mutual fund folios in fund of funds (FoFs) investing in ... Read more »

Nestle India Q2 Results | Profit rises to Rs 617 crore, revenue grows to Rs 3,883 crore

Nestle has reached out to consumers through its advertisements in newspapers and asked them to reach out directly and raise their concerns about its products. FMCG giant Nestle India reported profit ... Read more »

Evergrande: concerns linger even as embattled developer's Hengda unit makes interest payment on US$327 million onshore bond

China Evergrande Group made its first interest payment on its corporate bonds in nearly a month on Tuesday as questions continue to swirl about its ability to service its massive ... Read more »

Evercore ISI downgrades Marriott to in-line, says stock has little upside left after recent rally

This photo shows a woman walking past Marriott signage in Hangzhou in China's Zhejiang province.- | AFP | Getty Images The hotel industry appears to be rebounding faster than many ... Read more »

Gainers & Losers: 10 stocks that moved the most on October 19

The Indian market snapped its seven-day winning run to end lower on October 19. At close, the Sensex was down 49.54 points, or 0.08%, at 61,716.05, and the Nifty was ... Read more »

Taking Stock: Market slips from record high; realty, metal, FMCG take a hit

On a day of volatile trade, benchmark indices hit record highs in the opening hours on October 19 only to slip on profit-booking to close in the red, snapping a ... Read more »

Russia plans to invest $1 bln in the Armenian economy in the near future

In particular, the investments will contribute to the creation of new high-tech jobs and facilitate exchange in various areas of the economy, culture, and infrastructure development Read more »

Singapore is No. 2 in the world for attracting and developing talent: Insead

Singapore made it to top three in four of the six criteria, which encompass enabling, attracting, growing and retaining talent, vocational and technical skills, and global knowledge skills. SINGAPORE – ... Read more »

Russia's Internet audience reaches 124 mln people in 2021, says federal service

There are over 3,000 Internet providers, with more than 6,500 telecom operators working in this industry Read more »

Ian King Business Podcast: Green investment, the music industry, and Virgin Media's merger with O2

Listen to “Green investment, the music industry and Virgin Media's merger with O2”. The government announces new grants to encourage a switch from gas boilers to cleaner heat pumps, just ... Read more »

Silver hovers on Rs 64,000 riding on metals rally, weak dollar index

Silver Silver prices climbed above Rs 64,000 per kg on October 19, tracking a positive trend in gold and industrial metals, ETF inflows and a softening dollar index. The precious ... Read more »

Volvo Car launches S90, XC60 with petrol mild-hybrid powertrains

(Image: Reuters) Volvo Car India on Tuesday launched two models — S90 and XC 60 — with petrol-mild hybrid powertrains as part of its plans to shift to the petrol-only ... Read more »

Zoho introduces new apps and services to boost its business software suite Zoho One

Zoho’s organisation-wide search can also now understand natural language requests while widgets encapsulating data across the organisation can be aggregated together into a custom dashboard. Zoho has introduced new apps ... Read more »

Here's what to expect from Procter & Gamble earnings

Bottles of Tide detergent, a Procter & Gamble product, are displayed for sale in a pharmacy on July 30, 2020 in Los Angeles, California.Mario Tama | Getty Images Procter & ... Read more »

Zomato's Deepinder Goyal seeks higher tolerance, reinstates staff after Hindi fiasco

Today is a big day for us. A new Day Zero. But we couldn’t have gotten here without the incredible efforts of India’s entire internet ecosystem. Jio’s prolific growth has ... Read more »

UBS says buy these 8 auto stocks now before a rally next year

An automotive production line.Monty Rakusen | Image Source | Getty Images Analysts at UBS say the auto sector is about to rebound and have named eight stocks to buy — ... Read more »

Cramer's lightning round: I prefer Intuit over Mogo

Cel-Sci Corporation: “Look, all I can tell you is that these companies just have nine lives, these immunotherapy companies. And in the end, one of the big drug companies tend ... Read more »

Jim Cramer says he sold some of his ether holdings ahead of bitcoin futures ETF launch

CNBC's Jim Cramer said Monday he thinks cryptocurrency markets may put in a near-term top thanks to the impending launch of the first bitcoin futures exchange-traded fund in the U.S. ... Read more »