We are on the cusp of consideration of resolution plans for non-performing assets (NPAs) under the bankruptcy framework. Three issues have surfaced as prominent learning on the journey for successful implementation of the Insolvency and Bankruptcy Code (IBC). The need for a timetable for clockwork precision in triggering off events in the IBC is essential if we are to efficiently sell off distressed assets to right buyers and cut down losses to the banks. The tendency to dilute mandatory schedules as directory is a disaster in the making.
Compulsory duties through statutory change requiring the key managerial personnel, directors and the statutory auditors to provide adequate data and be involved in the preparation of a ‘shelf’ prospectus type of statement of affairs, on an ongoing basis, as a requirement of the IBC, will go a long way in more robust ‘due-diligenced’ disposal of NPAs as going concerns.
The information utilities and stock exchanges should be tasked with this responsibility of overseeing the preparation and maintenance of ‘shelf information memorandum’ and compliance, as there are capacity constraints of the resolution professionals and the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). Lack of ‘deligenced data’ reduces the ability to secure adequate purchase value of the NPAs.
Second, the ‘single-window’ approval concept while approving a resolution plan will enable the NCLT’s disposal of resolution plans for NPAs on a going concern basis. This is imperative. A statutory change in other laws for expediting approvals and consents is a fundamental issue for the success of resolution of NPAs. Scaling down contingent claims and liabilities and reshaping of the balance sheet for the successor organisation taking over the problem of the NPA is essential. If the Minimum Alternate Tax is exempted in case of a successful resolution of NPAs, then the saving arising from the add back of liabilities written off should be enabled to be applied to the revival of NPAs and creating a statutory fund or pool for paying off unsecured financial and operational creditors. This will go a long way in securing small traders and micro, small and medium enterprises (MSMEs) from the domino effect of insolvency.
Lastly, resolution for special interest groups like homebuyers or suppliers of essential goods and services required for maintaining the NPA as a going concern has to be addressed. Cases like Jaypee should not result in wrong law or erroneous principles being laid down which destroy the orderly application of the IBC for NPAs. If promoters are denied the right to bid for the NPA revival without rendering the NPA as a standard asset, then for any court, including the Supreme Court, compelling promoters to fund the NPA enterprise for such unsecured special interest groups is a bad law. The NCLT should oversee and examine how competing bidders for the NPA address the issue of delivery of flats or homes to the unsecured homebuyers. Criteria must be mandated for evaluation of proposals in such kinds of NPAs coming up for resolution and require the resolution applicant to protect the interest of homebuyers by ensuring that the successful bidder deliver upon the NPAs’ promises for performance of homebuyer agreements. Any distortion in the lenders or workmen’s priorities will have disastrous implications for the home loan sector and building financiers will avoid taking such risks in financing. This will disrupt financing of new constructions, which militates among the ‘Housing for All’ programme of the government.
Statesman-like handling of this crisis is fundamental in resolving the dilemma. Similarly, for supplies of essential raw materials, components, essential services, the clearance of past arrears of the NPA needs to be tackled skillfully. It is self-evident that resolution plans and the bidders will address these priority payments for ensuring continuity of their business under the resolution plan. This raises the issue of ‘super priority’ funding for sustaining the NPA during the period of consideration of the resolution plan. It’s woefully lacking today. Addressing these concerns are the lessons on the go and will determine the success or failure of the IBC.
The writer is executive chairman, Shardul Amarchand Mangaldas & Co