Bankers have decided that they will negotiate only with the highest bidder when resolving cases of corporate insolvency.
Conventionally, the creditors negotiate with the top few bidders to get the best value for the insolvent company.
“Since the IBC code did not specify that negotiations can be held with only the highest bidder, clarity was required given that in some cases resolution professionals and lenders entered into talks with multiple players,” said a senior official aware of the developments.
Banks, however, will now follow the guidelines prescribed by the Central Vigilance Commission, which favours the highest bidder for such transactions.
IBA has decided that only if the highest bidder — H1 — is found ineligible or backs out, will the creditors move on to the next highest bidder.
“This is expected to streamline the process. We also expect that serious players will up their bid, which ultimately helps in fetching a better price for the asset,” said a senior bank executive. It will also speed up the resolution process. However, industry experts said deciding the highest bidder may not be simple.
“No single plan can be determined as H1. One might pay a small amount upfront and give higher return overall or vice versa… Credentials of the bidder are also important criteria,”
said Manoj Kumar
of Corporate Professionals.
Bankers, too, have to lay out the terms and decide the parameters of negotiations for the highest bidder. “Banks cannot really do this till they know what the restructuring plan is… No bank has been able to spell out a wish-list till now,” another industry expert said.
According to the Economic Survey 2017-18, over 525 cases of corporate insolvency cases worth Rs 1.28 lakh crore have been admitted across all National Company Law Tribunal benches. Of the 10 cases resolved so far, financial creditors fully recovered their exposure only in one — that of Prowess International Pvt Ltd. A high-level committee is looking into the efficiency of the IBC and will make suggestions on improvements by the end of February.
via Insolvency and Bankruptcy Code: Banks to negotiate only with top bidder in insolvency cases – The Economic Times