Pushing insolvency resolution

The government brought in the Banking Regulation (Amendment) Ordinance, 2017, to kick-start insolvency resolution through the Insolvency and Bankruptcy Code, 2016.  Five months since the Code became operational, 700-odd cases have been filed in the National Company Law Tribunal, with 70 of them admitted for resolution. Legal experts share with Sudipto Dey  the implications of the ordinance on the resolution process.

Bahram N Vakil, founder & senior partner, AZB & Partners

‘Any new law is likely to be challenged in the courts. The jurisprudence that evolves over time will lay the ground for the success of the law’
Impact: The Banking Regulation (Amendment) Ordinance, 2017, gives another level of comfort to banks to approach the insolvency resolution process under the Insolvency and Bankruptcy Code, 2016. This is just the beginning of a new insolvency resolution process. It will take another two-three months to build up a pipeline of a large number of cases. 

Concern: Concerns remain over the bandwidth of the National Company Law Tribunal (NCLT) in terms of the number of cases it can handle.  Moreover, any new law is likely to be challenged in the courts.  The jurisprudence that evolves over time will lay the ground for the success of  the law.

Reshmi Khurana, managing director  and head of south asia, Kroll

‘Banks need the commercial flexibility to determine the price at which they can sell bad or distressed loans’
Impact: It is not clear whether the ordinance will resolve the underlying causes of the delay in bad loan resolution. Some of these include contrasting agenda within JLF members, threat of retroactive scrutiny of decisions related to bad debt resolution and a slump in certain markets, which makes it difficult for banks to find suitable buyers of distressed assets at desired valuations.

Concern: Banks need the commercial flexibility to determine the price at which they can sell bad or distressed loans. Banks have to be able to take a hit with regard to these haircuts and not fear any retroactive investigations. Another requirement is to make promoters and defaulters cooperate with banks and JLFs to assist in the loan restructuring or sale or whatever other resolution that the JLF (Joint Lenders’ Forum) has determined for a company.

L Viswanathan, partner, Cyril Amarchand Mangaldas

 
‘RBI should clarify the applicability of provisioning norms for measures initiated under the Code’
Impact: The ordinance is meant to assuage the reluctance of some banks to use the provisions of the Code, particularly for large accounts.

Concern: The Reserve Bank of India should clarify the applicability of provisioning norms for measures initiated under the Code. This is one step that can make a big difference to banks’ response to loan defaults. Exemptions from the Takeover Code for a resolution plan will be required for effectively dealing with defaults in listed companies. The pace of decision-making in the Joint Lenders Forum (JLF) or in the creditors committee in the case of proceedings under the Code is vital for optimal and timely outcomes.

Girish M Dave, partner, Dave & Girish & Co

Impact: The Banking Regulation (Amendment) Ordinance, 2017, has already been issued and now it is for the central government to issue necessary authorisations for action 

Concern: For the ordinance to have greater effect, the  code will also need to be appropriately amended. The right to initiate an insolvency resolution is present in the code, but can be exercised only in the prescribed manner. The committee of lenders can pass a resolution for insolvency only if they have at least 75 per cent majority, according to Section 21(8) of the code.

Divyanshu Pandey, partner, J Sagar Associates

Impact: Any insolvency resolution has to be a commercial decision.  There could be a lull till the RBI comes out with guidance on the kind of cases that should go for insolvency resolution. Resolution of a complex test case with a large default may spur banks to take this new route more readily. 

Concern: Further need for strengthening the enabling ecosystem for effective implementation of insolvency resolution. 

Sapan Gupta, national practice head, banking & finance, Shardul Amarchand Mangaldas

Impact:  The ordinance covers banking companies under the banking regulation Act, which includes private banks. This may be seen as intervention in commercial decisions of banks. However, the move can have a positive impact if the implementation is speedy and effective. 

Concern: The oversight committee, in addition to the power to initiate a resolution process under the code, should also be given the power to take the process to a logical end.  

Veena Sivaramakrishnan, partner, Juris Corp

Impact: The ordinance is primarily intended to enable banks, which are presently not taking the call on initiating a Corporate Insolvency Resolution Process  under the bankruptcy code, to take such a decision with the backing of the regulator.  The banks which are currently adopting a “wait and watch” approach may get forced to initiate action in a time-bound manner, keeping in line with the spirit of the code — that is, resolution in a time-bound manner and maximising the value of the assets.

Concern: Practical jurisprudence will need to evolve.


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