ibc: Is the government strategically maneuvering the IBC? | Daily News Byte

ibc: Is the government strategically maneuvering the IBC?

 | Daily News Byte


The time required to resolve cases under the Insolvency and Bankruptcy Code (IBC) is gradually increasing. In 2017-18, the average resolution time was 230 days. This has been increased to 679 days for the current financial year to September 2022. Moreover, 64% of insolvency cases have been pending for more than 270 days. As a result, the perception is that the IBC is losing its sheen, however, the government appears to be in no rush to simplify the code. Answering a question at the last parliamentary session, it was clarified that there is currently no proposal to reduce IBC’s procedural delays. Similarly, the government has ruled out any fast-track process to resolve real estate companies. Still, the extended hands of government seem to be playing an active role in dealing with stress.

The first whiff of possible government intervention came when former Reserve Bank of India (RBI) Governor Urjit Patel wrote about the same in 2020. However, for the common man, it came to the fore in the Union Budget 2021. The proposed National Asset Reconstruction Company Limited ( NARCL) commonly referred to as a bad bank. Strangely, after the Bad Bank announcement, the benches of the National Company Law Tribunal (NCLT) have been filled sub-optimally. Fewer judges led to delays, which in turn led to banks losing interest in IBC, instead gravitating towards NARCL.

Additionally, the RBI notified the regulatory framework for asset reconstruction companies (ARCs) on October 22. The framework allows ARCs to settle obligations with borrowers after the proposal is reviewed by an Independent Advisory Committee and Board of Directors. Interestingly, the requirement to comply with Section 29A of the IBC is not provided for settlement with the borrower. NARCL’s Memorandum of Association also allows for settlement of borrowers’ obligations. We will have to wait and see if there are any interesting settlements on the horizon.

One of the government’s earliest interventions to address this was the creation of an ALL investment fund to provide last-mile financing for affordable and middle-income housing projects, including those projects that have been declared distressed or pending insolvency. proceedings before the NCLT.

The case of stressed energy assets supports the argument. In 2018, the Standing Parliamentary Committee on Energy identified 34 stressed projects with a capacity of 38,870 MW. Currently, 10 projects with a capacity of 9,230 MW are being liquidated. Accordingly, Jhabua Power Plant was recently taken over by NTPC in a joint venture with other secured lenders, with Power Finance Corporation (PFC) being the largest lender. Similarly, for Lanco Amarkantak, a consortium of PFC, REC, SJVN and Damodar Valley Corporation can outbid a major conglomerate like Adani — a conglomerate that has helped tackle five 7,670 MW projects.

Also, the PFC and REC Board, in August 22, approved the creation of a 50:50 power management company to take over, manage, maintain and construct stressed power projects. And outside of the IBC, public sector companies are active in restructuring stressed energy assets. For example, Suzlon has had two rounds of restructuring in the recent past, the second being the refinancing of the SBI-led consortium’s loans by REC and the Indian Renewable Energy Development Agency Limited.

Similarly, the Central Government in consultation with financial sector regulators informs financial service providers for the purpose of bankruptcy proceedings, i.e. currently only on the basis of invitations from the RBI. Although it is not an optimal solution, the invisible hand is working to resolve NBFCs subject to IBC viz. DHFL has been successfully resolved, while SREI and Reliance Capital are in the midst of insolvency. One of the bidders for SREI is NARCL. This brings us to another branch of government that may end up playing a role in the future, ie. National Bank for Financing Infrastructure and Development (NBFID). Among NBFID’s many functions, one is to underwrite or refinance existing loans made by a lender for infrastructure projects. Another function is the acquisition of a company or institution, whose main goal is the promotion or development of infrastructure financing for projects. The above reads as an object clause SREI! Since there is no restriction on NBFID to take over or refinance existing stressed loans, it could venture into this arena.

Finally, the IBBI has recently allowed a legal entity such as the Insolvency Professional Entity (IPE) to act as an Insolvency Professional (IP). Previously, only individuals could act as IP persons. Therefore, it is theoretically possible for a subsidiary of a public sector enterprise to function as an IP; 49% share in the public sector and 51% in other individual IP.

The question is, is central planning back in vogue, or are we in the midst of a synchronicity of chance?

The author is an INSOL associate and restructuring advisor


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