Insolvency board allows more flexibility in asset sale of bankrupt businesses
New Delhi: The Insolvency and Bankruptcy Board of India (IBBI) has allowed administrators of bankrupt companies to sell these entities either as a whole or their assets individually, in a move that gives a great deal of flexibility in debt resolution.
While amending the regulations, IBBI said this has to be done with the approval of creditors to the company.
Amendments to the 2016 corporate insolvency resolution regulations published on Wednesday said the professional representative of creditors running the bankrupt business may, with the approval of creditors, invite debt resolution plans for the corporate debtor as a whole, or bids for sale of one or more of its assets or for both.
That implies creditors need not waste time by first calling for bids for a company as a whole and if no investor shows interest, then proceed for asset sale.
The amendments also allowed the resolution professional to invite those who provide interim finance to the distressed company during the bankruptcy proceedings to attend the meetings of creditors as observers without voting rights. Creditors run the bankrupt enterprise through the resolution professionals and decide the fate of the company by voting.
The amendments have opened a new dimension in the insolvency resolution process, said Anoop Rawat, partner (insolvency and bankruptcy) at law firm Shardul Amarchand Mangaldas & Co.
'IBBI has allowed piecemeal resolution which shall enable committee of creditors (CoC) to find asset-wise resolution where resolving the corporate debtor as a whole may look cumbersome, uncertain or time consuming,' said Rawat.
IBBI has been streamlining the process of debt resolution in order to improve the chances of rescuing the company and to maximize creditors' realization of their dues.
Anjali Jain, partner at Areness Law, said the regulation's amendment is in sync with the practical issues faced by interim financiers as they would now be able to oversee the utilization of interim funds and hence financiers would be incentivised to extend facilities.
The amended regulation, however, explicitly says interim finance providers will not have voting rights, a dampener for such financiers.
Jain said the flexible resolution approach is laudable as various exit points are statutorily incorporated. This would ensure value maximization of large entities where a diversified portfolio poses challenge to potential applicants who wish to bid for one or multiple assets, but not for the entire business, added Jain.
Over the years, the outcome of debt resolution under the Insolvency and Bankruptcy Code (IBC) has improved. With the government filling vacancies, the National Company Law Tribunal (NCLT) is also working at near full strength.
However, extensive litigation among shareholders, creditors and multiple potential investors often complicates the process of bankruptcy resolution. Data from NCLT showed creditors stand to recover over ₹ 67,000 crore from 284 cases of bankruptcy resolution achieved in FY25, a 42% increase compared to the amount recoverable from the turnaround of 275 companies achieved in the same period a year ago, Mint reported on 15 May.
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