Apart from facing reluctant and non-cooperating promoters, resolution professionals also deal with challenges of raising interim finance to keep a business going. “Availability of interim finance is critical to a successful resolution,” says Shailendra Ajmera, partner, restructuring and turnaround services, EY India. However, it is not easy for resolution professionals to find lenders for such distressed assets.
Bahram N Vakil, founding partner, AZB & Partner, points out that credit is essential to maintain critical supplies, such as electricity and raw material, to keep a business going. Given the stringent timelines under the code, the CoC plays a crucial role in taking timely decisions in running a company. And for that, banks that sit on the creditors’ table have to be quick on their feet while taking decisions.
A banker closely associated with the CoC process in a distressed company says they have developed internal guidelines to enable faster decision-making. “Decisions that usually take weeks are now being processed in days,” he says. Still many resolution processionals feel the CoC attendees should be adequately empowered to take sound commercial decisions in a timely manner.
A way forward could be for the regulator and courts to permit one-year clearance for maintenance of essential supplies that are critical to keep a business running, suggests Alok Dhir, managing partner, Dhir & Dhir Associates.
Some stakeholders feel few resolution professionals have experience in managing companies. “One needs to know the business to keep it a going concern. IRPs should be like chief restructuring officers,” says Atul Sharma, managing partner, Link Legal. Resolution professionals agree that they are new to the job. “We will mature with the growth and development of the nascent insolvency ecosystem,” says one of them.
The sector regulator, the Insolvency and Bankruptcy Board of India (IBBI), too has been on a learning curve. Over the last six months, the IBBI has come out with over a dozen notifications and clarifications to deal with various aspects of the code. Setting up of information utilities and putting in place cross-border insolvency laws are high among its priorities.
From an investor perspective, a key concern has been the tax implications while selling any stressed asset. “An exemption may have to be made for income tax on book profits due to write-off of liabilities under the resolution plan,” says Ajmera.
Most experts feel that the learning curve for stakeholders is likely to last for two to three years. A recent EY-Assocham report on the code’s progress aptly notes: “…at the heart of practical issues of implementation lies the insecurity with various stakeholders. …Over time we expect to see these insecurities diminishing.”
Some Speed Bumps On The Way
Lack of awareness of the law among stakeholders
Challenges in raising interim working capital
Need for greater support from operational creditors and committee of creditors (CoC) to keep the business going
The Code needs to be aligned with the existing laws, such as the Companies Act, Sebi regulations, the Income Tax Act, to speed up resolution plan approval
Resolution professionals need legal protection and insurance cover
Absence of cross-border insolvency laws could lessen the Code’s effectiveness