Promoters’ equity will be eventually cancelled after resolution under bankruptcy: Corporate lawyer Shardul Shroff

With each passing day, more doubts and questions are emerging about the recent amendments introduced in the bankruptcy code. There are some who are even talking of more changes in the code. In a quick chat with Anand Adhikari of Business Today, top corporate lawyer Shardul Shroff, who is also executive chairman of  Shardul Amarchand Mangaldas, sheds light on some of the issues that are still in the minds of bidders, bankers and promoters. Here are the excerpts…

Are promoters with NPAs also debarred from bidding in the liquidation process under bankruptcy code  ?
Yes, they would be disqualified from both; bidding for assets and bidding at eventual liquidation.

Isn’t there a stand  still clause preventing promoters from settling their dues?
The promoters with NPAs would be allowed to pay up only for the purpose of enabling them to bid for the assets. There is no standstill of insolvency proceedings. Once the insolvency process is on, there will be no standstill ( of the process).

So if the promoters pay up , the assets is no longer a NPA. It actually become a standard asset  and hence out of bankruptcy?
But the fact is that it was a NPA and, therefore, once the insolvency process has begun, there is no power to withdraw it.

Can promoter challenge the fact that the asset no longer qualifies for bankruptcy ?  
Promoters  may challenge it. They can challenge it by saying why there is an insolvency  if it is a regular ( standard ) account.  That ‘s the question not answered by any judge or authority as of today.

How to deal with SME cases where there will be no bidders and the eventual route would be liquidation ?
Now there is no leeway. The bankruptcy law applies universally to all. There  may be a case for some amount of leeway where  there are no bidders or promoter is the only bidder.

Is there a possibility of extension of 270 days  for resolution or liquidation ?
The 270  days is the outer limit  in which the committee of creditors ( CoC) has to consider a resolution plan. It is not effectively  what the NCLT is bound by. here is no time limit for NCLT to approve a resolution plan. There is no pressure of 270 days on the NCLT.

Can promoters also challenge  the one year cut off for NPAs to debar them from bidding  ?
I don’t think the courts will interfere. That’s not a ground to challenge.

The debarred promoters, theoretically, still hold their shareholding in their companies post the new bidder taking it over?
They will lose all that. It’s meaningless.  Their equity will be cancelled. It will be zero.  It would be part of the entire plan where banks would take haircut.

What about the non promoters’ equity ?
That remains. It’s only the promoters equity that goes out.

via Promoters’ equity will be eventually cancelled after resolution under bankruptcy: Corporate lawyer Shardul Shroff

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