In an effort to curb the crab mentality among litigious bidders to acquire stressed assets under the Insolvency and Bankruptcy Code (IBC), banks, in a proposal to the Ministry of Corporate Affairs, have suggested that bidding under the ‘Swiss Challenge Method’ be incorporated into the Code.
Under the ‘Swiss Challenge’ method, the highest (H1) bid in the first round of bidding becomes the base price for bidders, including the H1 bidder, to place counter-bids in the second round of bidding.
The stressed asset will go to the highest bidder in the second round. If no other bidder is able to better the H1 bid, the top bidder in the first round is declared the successful bidder.
This assumes significance in the wake of recent proceedings related to Binani Cements, where UltraTech has offered to increase its bid after Dalmia Bharat was declared the top bidder.
A senior public sector bank official said banks have proposed the ‘Swiss Challenge Method’ to the Ministry to make the insolvency resolution process under the IBC more transparent. Further, it could also help banks realise more value from the bidding process and possibly reduce litigation.
Checking NPA woes
“There were a lot of expectations that the IBC would be a quick fix to our NPA (non-performing asset) woes and that we would get proceeds from the sale of some of the stressed assets in the last quarter of FY18 and the first quarter of FY19.
“However, the process is getting bogged down in litigation, with bidders dragging each other to court to prove their rivals’ ineligibility and their own eligibility or coming up with superior offers after bids have been opened,” said the banker.
In the recent past, some banks have resorted to the Swiss Challenge method to offload their stressed assets under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
For example, in March 2018, Jammu & Kashmir Bank had invited counter-bids for the sale of its exposure to Essar Steel India Ltd and Odisha Slurry Pipeline Infrastructure Ltd under this method on a 100 per cent cash basis.
via Banks bat for ‘Swiss Challenge’ method in IBC resolution cases – Business Line