Partial sale of companies won’t be default under Insolvency and Bankruptcy Code

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The government could allow part-sale of a corporate debtor under the bankruptcy law only if the stressed entity fails to attract a rescue plan for itself in entirety, sources said.

The proposed move is part of the government’s broader efforts to cut delay in resolution under the Insolvency and Bankruptcy Code (IBC) and prevent the erosion of stressed asset value. “Part-sale of stressed firms would not be a default option under Insolvency and Bankruptcy Code (IBC),” said a source.

The focus would be on getting one single resolution plan for the entire company in the first instance, and if that attempt fails, multiple plans would be entertained, he said.

Under the extant rules, the resolution plan for the entire insolvent firm is allowed, without which it goes for liquidation.

The ministry of corporate affairs, in the draft amendments to IBC put out for public comments, proposed that separate resolution plans could be invited for separate parts of one insolvent firm to maximise value realisation, as finding a single resolution applicant willing to take over the entire debtor can be difficult at times.

Companies with manufacturing plants in various parts of the country, for instance, may draw investors who would want only one or a few plants and not the entire firm.An enabling provision to conduct such transactions under the IBC, therefore, is required, when the debtor doesn’t get any resolution plan for the entire company, said the person cited earlier. “It will help prevent liquidation and preserve jobs.”

The changes will be part of the planned amendments to the IBC, which are being finalised.

“Sometimes, there could be arms or units of a stressed company that are viable and profitable, and investors would be interested in those assets instead of the entire company,” said Yogendra Aldak, partner at Lakshmikumaran & Sridharan Attorneys. “The part-sale proposal will give investors an option to choose the assets.”

Moreover, such an option under the IBC will enable smaller investors, with somewhat limited financial muscle, to bid for assets of the debtor, he said. “This will maximise the value of the assets of the company and further the objectives of the IBC,” he said.

Delay in resolution
According to data from the Insolvency and Bankruptcy Board of India, the 611 bankruptcy cases resolved under the IBC until December 2022 took, on average, 482 days, barring the time excluded by the National Company Law Tribunal (NCLT). The IBC stipulates a maximum of 270 days to resolve corporate bankruptcy. In these 611 cases, creditors recovered ₹2.53 lakh crore, or 30.4% of their admitted claims.



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