As the first flush of stressed assets under the Insolvency and Bankruptcy Code enter the final resolution phase, there are increasing instances of actions of resolution professionals (RPs) coming under scrutiny. Take the case of Binani Cement. The promoters, Binani Industries, has recently challenged the RP in the National Company Law Tribunal (NCLT), alleging “personal interest” in undervaluing Binani Cement and then selling the stressed asset to his preferred bidder. One of the bidders, UltraTech, too, has moved the tribunal, questioning the rejection of its bid in favour of Dalmia Bharat. Then, there are other allegations against RPs in varying degrees by different stakeholders. Some allege that RPs have not been responsive in taking up the eligibility matter under Section 29A, an amendment to the Insolvency and Bankruptcy Code (IBC) brought about by the government last year to debar certain set of promoters from bidding. A senior executive from a private equity fund says many RPs have not much experience of merger and acquisition deals. Due diligence access has been restrictive, information asked for by prospective bidders are hard to come by, and factory visits are delayed with limited time to take stock of things are some of their key grievances. “The relationship between prospective bidders and that of the RP is generally very strained,” says a PE fund executive. At times the RPs themselves are not clear of the process and the rules, alleges another executive.
On the operational side too, there have been challenges. An executive from one of the steel companies notes that in the initial months, there was a problem in the release of payments and as a result production suffered. “Usually, suppliers work on credit, based on understanding. But since the suppliers do not know the RP, they did not want to extend the credit line.” In many cases, the problems emanated because several provisions of the law were unclear.
There have been instances were some RPs handed out large accounts that they struggled with, say experts who have been closely following the resolution process under the IBC. Senior executives from public sector banks who have dealt with insolvency cases point out that RPs who work closely with large multi-disciplinary firms have done much better at handling the mandate. “These RPs are backed by expertise from different fields like corporate law and finance. In many big-ticket NCLT cases, RPs have been able to take control of operations, contain leakage and show improvement in realisations,” notes another banker. Another lender points out that each RP operates under certain limitations. “They will be more useful to deal with cases where the corporate loan exposures are small and with few banks as lenders,” he adds. Not every stakeholder is unhappy with the way RPs have gone about their business. An executive of a large business conglomerate that put in bids for several stressed assets across verticals says: “It’s a robust system. We didn’t have any issues in any of the cases”.
What RPs have to say
Most RPs concede that implementing the provisions of the Code has involved channelling diverse legal and operational dimensions, with no precedent. “RPs have been focused on the challenges in driving the process to a successful conclusion within the assigned timelines while seeking to balance interests and perspectives of multiple stakeholders,” says Dhaivat Anjaria, an RP who handles a large account and partner with advisory services firm, PwC. According to Sumit Binani, another RP, the biggest challenge handling a resolution assignment is the never-ending and increasing dispute and litigation between different stakeholders. “It is ironical that on one hand, the law prescribes for a moratorium, or a calm period, during the resolution process so that the negotiations for the revival of the corporate debtor happens peacefully, and on the other, the IP has been seen more often fighting for peace,” he says. Industry professionals say as the talent pool of RP improves — currently pegged at around 1,700 — so will the quality of professionals to choose from. “We are on a learning curve, learning all the time on the job,” says an RP who deals with several big-ticket resolution cases.
Regulator bats for RPs
A senior official from the Insolvency and Bankruptcy Board of India (IBBI), the regulator overseeing the implementation of the Code, says that recent cases against the conduct of RPs mostly relate to the judgement of the professional being questioned. “Since the Code is open-ended in terms of RPs taking calls for a company, there could be cases of misjudgement,” the official says. However, the regulator cannot be expected to ‘hang’ the professional for it, he adds. There have been cases where the decision of an RP has been linked with his or her professional the conduct. However, the regulator has ruled in favour of the RP in most cases. Over the last few months, the regulator has come out with Standard Operating Procedures to be followed by RPs in conducting their resolution assignment. Institutionalising the learning from experience of the Code is something that will help all stakeholders involved in the resolution process.
With inputs from Abhijit Lele