IBBI Allows Bankrupt Cos to be Split, Boost for Recovery of Dues

Regulatory agency Insolvency & Bankruptcy Board of India (IBBI) has allowed splitting of companies to attract more participants into the corporate resolution process as it seeks to provide flexibility and increase realisation.

The move to split assets is seen to be beneficial in cases involving real estate players and other entities with multiple projects, all of which may not be viable, or there may be some assets which will generate higher value, a senior government official said. It would help in the resolution of bankrupt conglomerates into multiple businesses.

“To maximise value, the amendment enables the resolution professional (RP) and the committee of creditors (CoC) to issue a request for a resolution plan a second time for the sale of one or more of assets of the corporate debtor (CD) in cases where no plan has been received for the corporate debtor as a whole. It enables for a plan to include the sale of one or more assets of CD to one or more successful resolution applicants submitting plans for such assets and providing for appropriate treatment of the remaining assets,” IBBI said while releasing the amended regulations. The new rules also provide a last-ditch compromise settlement with the promoter before liquidation if everything else fails.

With an increasing number of bankruptcy cases going for liquidation and recoveries dipping sharply, the agency has also allowed marketing where the asset value exceeds Rs 100 crore. “There has to be some push factor. So far, potential resolution applicants would reach out once they knew of a company being part of the process. Now, the RP and CoC can hold roadshows, attract more bidders, and also structure transactions better,” the official said.

“The most important change is the flexibility of having multiple resolution plans for different parts of assets. There would also be a substantial improvement in the flow of information as stipulated now. Enhanced disclosures, including intangibles like losses brought forward, GST input credit, supply chain, brand, etc, will help make price discovery more efficient,” said Hari Hara Mishra, director of UV ARC (asset reconstruction company).

So far, the procedure involved notification of the process seeking bids and the resolution professional putting in effort in their personal capacity to reach out to buyers and share information when required. Now the process mandates marketing, and the CoC can approve the marketing costs for the sale of a company just like in an IPO process, providing all details in an information memorandum and holding roadshows for buyers. “Even when the debtor heads towards liquidation, there is now a window for exploring a scheme of arrangement/compromise,” said Mishra.