The IBC And Interim Finance: Potential Developments Based On DIP Lending Experience

While the market for interim finance in India is relatively undeveloped, based on experience with DIP lending in the United States, interim finance’s super-priority status, the potential for “priming” existing secured lenders and the high rates of interest on offer suggest this area will attract substantial interest from nontraditional players, existing lenders and new lenders…

A critical aspect of rescuing a company in financial distress is ensuring that it has access to sufficient cash to continue operating while the business is restructured. The recently introduced Insolvency and Bankruptcy Code 2016 (the “IBC”) acknowledges this, with specific provisions on “interim finance” intended to encourage lending to companies that have entered the Corporate Insolvency Resolution Process (the “Resolution Process”) under the IBC. While this is a new concept in India, the United States Bankruptcy Code (the “Bankruptcy Code”) has had similar provisions, specifically those on debtor-in-possession (“DIP”) financing to companies in Chapter 11 proceedings (“Chapter 11”), in place for a number of years.1 This article considers the interim finance provisions in the IBC, and how the market for interim finance may develop based on experience with DIP lending in the United States.

Interim finance provisions of the IBC