IBBI releases discussion paper aimed at improving value of stressed assets

Proposals call for marketing strategy where total claims exceed Rs 100 cr; creditors can also propose steps to market stressed assets

The Insolvency and Bankruptcy Board of India(IBBI) has released a discussion paper that seeks to improve the value of stressed assets and reduce delays in insolvency processes.

The regulator has charted out certain activities under the insolvency process that can be done simultaneously as opposed to one after another.

The paper said that for prospective buyers of stressed assets, the information memorandum (IM) is not required to pique their interest in the assets.

IM contains specific information about insolvent firms. Preparing this document takes a lot of time, so in the initial stages, only basic information about such firms can be provided to interested buyers to save time, the paper said.

The paper also talks about increasing the period for submitting the Information Memorandum as the regulator has observed that this process takes more time.

Meanwhile, it has been proposed to decrease the time for filing avoidance applications so that potential buyers can have complete information about the assets of insolvent firms.

Avoidance Applications widen the asset pool of lenders by bringing back the assets unlawfully diverted from insolvent firms.

The paper proposed that resolution professionals (RP) shall prepare a strategy for marketing stressed assets where the total claims exceed Rs 100 crore. The creditors can also propose measures to market such assets. This proposal is designed to increase competition in the marketplace and enhance the value of these assets, it said.

The threshold of Rs 100 crore was kept to ensure that a marketing plan does not burn a hole in the pocket of smaller insolvent firms, the paper added.

The paper also talks about how buyers may sometimes be interested in one part of the assets of insolvent firms and may not be interested in another part. To rectify this issue, it has been proposed that in cases where no resolution plan was received, the lenders/RP may resolve part of the stressed assets.

IBBI data says only 14 per cent of the Corporate Insolvency Resolution Process (CIRP) yielded a resolution plan between December 1, 2016 and March 31, 2022, while 47 per cent ended in liquidation during the period.

In cases where there is no sight of a resolution plan, the lenders may take a call to liquidate the assets of such firms. This will save the cost of unnecessarily going through a process of resolution that will not fetch a result, the paper said. Once a proposal of liquidation is placed before the company law tribunal, the lenders can work on a compromise with the borrowers, which can be submitted to the tribunal, the paper suggested.

Besides this, the paper proposes that assets of insolvent firms that might be mortgaged/charged can be included in the list of stressed assets with the consent of such lenders(mortgagee/charge holder).

Other proposals include enabling geotagging of the immovable assets, allowing lenders to know about the valuation process of stressed assets, repetition of valuation exercise where the timeline for the corporate resolution process has extended beyond the mandatory 330 days, and protecting the interests of dissenting lenders in the event of liquidation.

The paper also proposes that the RP shall continue to conduct the lenders’ meetings during the period between the approval of the plan by the lenders and the approval of the plan by the company law tribunal.

Lastly, the Interim Resolution Professional(IRP) should hand over all the details about the insolvency process to the RP as well as keep the insolvent firms abreast of the initiation of the resolution process to the insolvent firms, the paper said.