Stakeholders seek timeline for approvals from regulators for resolution under IBC
Mumbai: Stakeholders in the insolvency and bankruptcy process are lobbying for a specific timeline within which authorities such as competition, tax and financial market regulators should give approvals for resolution plans of assets undergoing insolvency proceedings.
This is part of suggestions submitted to a committee headed by corporate affairs secretary Injeti Srinivas. The committee was formed by the government in November to review the Insolvency and Bankruptcy Code (IBC). Wednesday was the last date for submission of comments.
“There should be a provision of deemed date. This means that if the go ahead doesn’t come within the given time, it will be deemed to be approved. It is important to have a time frame because bidders otherwise will opt for conditional bidding and there may be a compromise on the resolution plans,” said a lawyer involved with resolution in companies currently undergoing the process. He requested anonymity.
This comes at a time when lenders have received bids for some of the 12 assets for which banks had filed insolvency petitions following the 13 June directive of the Reserve Bank of India (RBI). Banks have also started filing applications at the National Company Law Tribunal (NCLT) for companies that were part of RBI’s second list. According to lawyers and bankers, interested parties have expressed concerns that their resolution plans may not be approved within the 180-day period (extendable by 90 days) as prescribed under the law because of lack of approvals from other regulatory agencies.
For instance, since rivals are vying for assets in a particular sector such as steel, approval from the Competition Commission of India is required. Here, stakeholders have sought either to exempt the bankruptcy code-related transactions under the exempt category or fast-track the approval process.
That apart, stakeholders have also sought reviews of the process to seek approvals from sectoral authorities as well as under the Foreign Exchange Management Act where overseas buyers are involved.
“The ease of achieving a resolution plan may significantly increase if the same could be conceived under a comprehensive framework, wherein all the requisite approvals are deemed to be in place on approval of the resolution plan by NCLT. For example, the MCA has, in October 2017, clarified that if a resolution plan has been approved by the NCLT, then the approval of all the stakeholders under the Companies Act would be deemed to have been accorded,” according to the CFO Board report prepared in association with KPMG India, released in December, which analysed various aspects of IBC.
CFO Board is a group of financial executives from India’s leading business houses.
The report also said that there was a need to consider acquisitions, following the resolution plan approved under IBC, to be included in the list of exemptions as allowed under certain sections of the Income Tax Act.
The income tax department last week said that rules around levy of minimum alternate tax (MAT) will be eased for insolvent companies.
The tax department said companies against whom insolvency proceedings have been initiated will be allowed to reduce the entire amount of loss brought forward, including unabsorbed depreciation from the book profit for calculation of MAT.
Sebi has already formed a panel involving its officials and those from the Insolvency and Bankruptcy Board of India (IBBI), said Ajay Tyagi, the regulator’s chairman, after its board meeting on 28 December. He also added that it was a complex issue and needed careful deliberation.
The committee has already submitted its draft recommendations in the month of November.
These recommendations include that trading in stocks of these insolvent companies not be suspended, exemption from the requirement of 25% of public float, relaxed delisting and preferential issue regulations. Sebi is yet to accept these recommendations.
Most of the companies undergoing insolvency proceedings are listed companies and need dispensation from Sebi’s norms pertaining to minimum public float, preferential issues, compliance and disclosure requirements, approval for mergers and other reorganization.