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Business News/ Politics / Policy/  IBC review committee starts public consultation
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IBC review committee starts public consultation

The move comes in the wake the recent amendment to the IBC which prohibits defaulting promoters and related entities from bidding for their assets

IBBI chairman M.S. Sahoo. Comments/suggestions along with brief justification may be sent through the online facility available on MCA website up to 10 January, 2018. Photo: Priyanka Prashar/MintPremium
IBBI chairman M.S. Sahoo. Comments/suggestions along with brief justification may be sent through the online facility available on MCA website up to 10 January, 2018. Photo: Priyanka Prashar/Mint

Mumbai: A committee formed by the government in November to review the functioning of the insolvency and bankruptcy code (IBC) has invited comments from stakeholders to identify issues impeding the efficiency of the IBC resolution and liquidation framework.

The government panel has sought comments from stakeholders at a time of considerable unease on account of the recent amendment to the IBC which prohibits defaulting promoters and related entities from bidding for their assets.

Headed by the ministry of corporate affairs secretary Injeti Srinivas, the committee held its first meeting on 8 December.

“Comments/suggestions along with brief justification may be sent through the online facility available on MCA website up to 10 January, 2018. It is requested that comments/suggestions be provided through this online facility only," a government press release stated.

Mint reported on 12 December that the government has decided to ask the panel it formed on 16 November to review provisions of the IBC to also review a later amendment prohibiting defaulting promoters and related entities from bidding for their assets.

According to resolution professionals, bankers, promoters and other industry experts, the amendment to the bankruptcy code initiated through an ordinance in November will not only depress valuations but also shut out clean promoters who may have defaulted on loans due to adverse business cycles.

The Insolvency and Bankruptcy Board of India chairman M.S. Sahoo, however, does not agree. He said the amendment will keep out “tainted" bidders.

“It (the amendment) does not debate on promoters v/s non promoter. There is a debate that it will depress valuation to which I do not agree. We are looking at a scenario we get more bidders who are not tainted," Sahoo said at an event organized by the National Stock Exchange and NYU Stern on Thursday.

Industry experts say the definitions of wilful defaulter and related party in the context of the bidding process under the IBC need to be well-defined.

“The ordinance is very wide; it seems to debar many people in India. Related party is very vague and everyone could be a related party. Wilful defaulter has not been properly defined and needs to be relooked at. We also need to re-think whether these debarred party will not be able to bid on one set of assets (his own) or all insolvent assets," said Renuka Sane, associate professor, National Institute of Public Finance and Policy at the same event.

The ordinance issued late November bars not only wilful defaulters, but also several other categories of investors such as guarantors to the debtor, those with loans classified as non-performing assets for at least a year, those convicted for any offence with a prison term of more than two years, directors in companies that have been disqualified, entities barred by the capital markets regulator, those who have been found to have struck fraudulent transactions with the firm, and connected entities.

While the 12 accounts mentioned by the Reserve Bank of India in its first watch list have received interest from large firms and investors including foreign investors, it may be difficult for small and medium enterprises to attract quality bids. Consequently, there may be a case for differential treatment.

“There is a moral hazard if same promoter who has siphoned off funds is allowed to come back. However, SMEs will not get anyone else to come, there could be some genuine business reasons for the company to reach this stage these things should be differentiated (sic) ," said Ajay Piramal, chairman of Piramal Enterprises, at the event.

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Published: 15 Dec 2017, 01:17 AM IST
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