With tweaks, June 7 circular will fly

The RBI is yet to come out with the reference date for loan accounts less than Rs 1,500 crore

The framework for resolution of stressed assets under the Reserve Bank of India’s (RBI) June 7, 2019, circular offers an alternative to formal insolvency proceedings to resolve financial distress. It outlines a scheme for resolving financial difficulties through ‘out of court’ or a ‘negotiated restructuring’ mechanism.

This complements the formal insolvency framework by reducing the burden on judicial infrastructure, a significant challenge being faced under the Insolvency and Bankruptcy Code (IBC). To be effective, out of court restructuring also requires ‘coordination among the participants’, ‘recognition of priorities inter se the creditors’ and ‘agreement to suspend adverse actions or agreeing to a