The Insolvency and Bankruptcy Board of India’s move (IBBI) to crowd source ideas to amend an evolving regulation is welcome. Novel ideas, especially from stakeholders, will lead to a more conducive regulatory framework for swift resolution of corporate distress.
The IBBI has said it will modify regulations by April next year, and this is in addition to inviting public comments on its own draft regulations.
Rightly, the National Company Law Tribunal too wants a review of the rules to ensure that they are not “misused or mis-interpreted” by resolution professionals. Rules that conflict with the public policy goal of maximising the value of the resolution asset must go. Continuous bidding to discover the highest value for the asset being sold must be the norm.
The rule that debars a promoter from bidding for the company that is being sold either as a going concern or as parts after liquidation is a problem. Those who have their accounts classified as non-performing assets for one year or more, a “connected person” and a related party of “connected persons” are also disqualified from bidding.
While the underlying goal of preventing those who have wilfully run their businesses into the ground from regaining possession of their companies is understandable, the rule has resulted in unforeseen disqualifications sans merit.
The stress should be on widening the market for distressed assets, not on restricting it. There are other laws in force to prosecute errant promoters. Preference must also be given to a promoter who puts cash upfront.
The original bankruptcy code envisaged promoter-driven insolvency-resolution plans, proposing repayment of the defaulted loans and claims of other creditors, postponing sale of the asset till after failure to live up to the plan. There is merit in it.
This piece appeared as an editorial opinion in the print edition of The Economic Times.
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