Detailed liquidation rules in the works to save viable firms: IBBI chairman

During the Oct-Dec quarter of 2018, 78 Corporate CIRPs ended in liquidation, taking the total number to 302

A detailed framework for sale of a corporate debtor as going concern and sale of business of a corporate debtor as going concern is being worked out. Going concern principle is the assumption that an entity will remain in business for the foreseeable future after a resolution.

“We will make all efforts to save a viable company. For instance, if a company is actually viable but a wrong decision has been made, it will be given another opportunity rectify the mistake,” said M S Sahoo, chairperson of the Insolvency and Bankruptcy Board of India. “It will be an addition to the existing regulations.”

He was speaking on the sidelines of an event on the Insolvency and Bankruptcy Code (IBC), organised by the Indian Chamber of Commerce and the Society of Insolvency Professionals of India.

There have been a number of cases where courts have ruled in favour of liquidation as a going concern, to protect jobs. Sahoo said the regulations provide the option for sale of a corporate debtor as a going concern and sale of business of the corporate debtor as a going concern.

“Today, companies are going into liquidation for other considerations. But the objective of the law is resolution,” he said.

The recent Supreme Court order upholding the IBC also mentions that the preamble of the law does not refer to liquidation, which is only availed of as last resort. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern, it mentioned.
 

During the October-December quarter of 2018, 78 Corporate Insolvency Resolution Processes (CIRPs) ended in liquidation, taking the total number to 302. Also, 51.5 per cent of CIRPs which were closed ended in liquidation, as compared to 13.5 per cent ending with a resolution plan. It should also be noted, though, that 75.2 per cent of the CIRPs ending in liquidation were earlier with the Board for Industrial and Financial Reconstruction or had become defunct.

“We are working to ensure that we stick to the timelines,” said Sahoo.

He said the issues being litigated on were getting sorted. “When can one go under (Section) 12A, whether a promoter can submit a resolution plan — these issues are getting sorted out, and mostly from the SC, which means there is a finality. Once all those issues are sorted, most transactions will happen on time.”

The Board was also conducting programmes for resolution professionals and impressing on them to use technology to expedite the process. “When you start something new, there are hiccups but, going forward, all cases will happen on time. There can be rarest of rare cases (as exceptions).” As of December end, of the 898 ongoing CIRPs, around 31 per cent had breached the 270-day timeline for completion of the resolution process.

Rudra Chatterjee, president of the ICC, said the IBC had shifted the balance of power from borrowers to the financial creditors. And, that the Code had helped in unlocking of funds from non-performing assets.

Aid for firms

• Provisions to be an addition to existing regulations
• During the October-December quarter 2018, 78 CIRPs ended in liquidation, taking the total number of CIRPs leading to liquidation to 302
• Board conducting classes for resolution professionals and impressing on them to use tech to expedite the process
• As of December end, of the 898 ongoing CIRPs, 31% had breached the 270-day timeline