In an effort to maximise the value of a company undergoing insolvency proceedings, the bankruptcy court has allowed for liquidation of the company as a going concern.
Nitin Jain is the official liquidator for PSL Group — recently liquidated as a going concern.
In an effort to maximise the value of a company undergoing insolvency proceedings, the bankruptcy court has allowed for liquidation of the company as a going concern. This amendment tries to stitch all the assets of the company as a whole, in a last-mile attempt to save the business as a whole. Explaining how the newly introduced liquidation process works, Nitin Jain, Senior Partner at AAA Insolvency Professionals LLP, said that the main objective is to maximise value for creditors. Nitin Jain is the official liquidator for PSL Group — recently liquidated as a going concern.
PSL, a manufacturer of pipes used in the oil and gas sector, became a Non-Performing Asset in 2012. The company still had operational plants and clients, and several workers on board. During the corporate insolvency resolution, PSL received no resolution plan, which is when the Committee of Creditors along with the resolution professional met and decided to liquidate it as a going concern.
Is sale of the Company as a going concern under liquidation different from a resolution plan under corporate insolvency process?
There are several similarities, between a resolution plan approved under corporate insolvency and sale of the corporate debtor as a going concern under liquidation. In both processes, the company is transferred to the incoming investor, whereby the existing shares of the company are extinguished, and new shares are issued in favour of the new investor. The affairs of the company are transferred and hence all contracts are transferred to the new investor. All clients, suppliers, and the entire business of the company is transferred.
In a recent order by NCLT Ahmedabad dated 08.09.2021 for PSL Limited where I was the Liquidator, it mentioned that in both the processes the sale of business takes place, in both the distribution of the liquidation sale proceeds or resolution amount is in terms of priorities as set out in Section 53 of Insolvency Bankruptcy Code. Also, the management of the company changes in both cases. The order also mentioned that there still remains a vacuum in terms of certain provisions under the code and liquidation regulations, as far as the Investor is concerned to run the company as a going concern without any hiccups. For example, carrying forward losses is allowed by permitting exemption of section 79 of Income Tax for a resolution plan however no such benefit is provided in liquidation sale as a going concern. Further, certain relaxations and benefits with regards to SEBI regulations for preferential issue/ allotment of shares, substantial acquisition of shares etc which are available for a resolution plan that have been approved in the corporate insolvency process are not available in liquidation as a going concern.
Do potential investors go through the same scrutiny under the liquidation as a going concern scenario as does an investor who proposes a resolution plan?
In sale under liquidation of the corporate debtor as a going concern, in the case of PSL Limited, we set out the eligibility for bidders in a separate document, the e-auction information document which included setting certain financial parameters and applicability of Section 29 A of the insolvency bankruptcy code. This is similar to an EoI document in a corporate insolvency resolution process.
Can different verticals of a company under IBC be sold separately?
Under the resolution plan, we are required to arrive at a full resolution and therefore one resolution plan or multiple resolution plans for the company should resolve the entire company. Under liquidation in sale of the corporate debtor as a going concern, IBBI Liquidation Regulations 32A allows grouping of assets and liabilities which are to be sold as a going concern. In this case, either the Committee of Creditors (CoC) can group assets and liabilities or if the CoC could not identify the group of assets and liabilities, the Liquidator in consultation with the Stakeholders Consultation Committee can group these assets and liabilities to be sold as a going concern.
What is the time frame for completion of liquidation as a going concern?
Liquidation as per IBBI liquidation regulations 44(1) is required to be completed in one year, where the sale of the corporate debtor as a going concern is initially allowed 90 days, and any extension is subject to the approval of NCLT.
Has the IBC helped in the resolution process?
As per the June 2021 quarterly newsletter by IBBI, till now approximately 4500 cases have been admitted in corporate insolvency since 2017. Nearly 25% of these cases have been withdrawn and settled. In addition, nearly 400 resolution plans have been approved by NCLT which has led/ in the process of realization of nearly Rs. 2.5 lakh crore of money/ capital for the banks/ financial creditors.
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