Business Today|August 09, 2020
What are the legal implications of suspending IBC?
The implications of suspending the corporate insolvency resolution (CIR) process indicates lack of capacity of tribunals, inability to deal with lack of market demand for stressed assets in the CIR process, and ban on existing promoters remedying the default. It also indicates excessive litigation slowing down the resolution process. In the absence of a white knight or a third-party promoter stepping in to take over, the ban on existing promoters continuing with the company is deeply problematic. There is a moral dilemma. The expectation that lenders and promoters of companies, which are stressed assets / NPAs for banks, resolving matters without the imperative to find a solution in a time-bound solution, are difficult to handle. A mechanism which expects NPA companies/stressed assets will find their own solution with lenders is totally useless.
You represent various stakeholders. So what does it mean for lenders, defaulters, and government?
Lenders would be stressed since they cannot rely upon defaults in the interim (from March 25, 2020) by borrower companies to seek resolution of bankruptcy of such firms that are in insolvent circumstances. It would open the need for lenders standing outside, winding up and proceeding to enforce security, not as a mere asset sale or a piecemeal sale, but as a sale on a going concern basis with management rights, and which promote creation of adequate cash flows to repay lenders. The suspension of default interest and penal interest together with non-payment of regular interest and the right to recovery will lead to bank balance sheets shrinking and create the need to capitalise banks.
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August 09, 2020