Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named 'The Tortoise'
There has been a lot of action relating to NPA resolution, a contentious issue for some time now the latest being the Insolvency and Bankruptcy Code (IBC), an Act which helps troubled corporates, partnership firms and individuals in debt to re-organise and opt for insolvency resolution in a time-bound manner to maximize value of its assets.
The IBC, passed by the Parliament on 11th May 2016, received Presidential assent on 28th May 2016 and was notified in the official gazette on the same day.
The IBC process
Application on default – Any creditor(s) can apply for insolvency on corporates that default on debt or interest payment. These are referred to the National Company Law Tribunal (NCLT) on priority under the IBC.
Appointment of Insolvency Professional (IP) – An IP is to be appointed by the regulator and approved by the creditor committee. IP will take over the running of the Company along with the control and power from the company’s Board of Directors. IP shall have immunity from criminal prosecution and any other liability for anything done in good faith.
Moratorium period – The IP gets 180 days (six months) to come up with a workable solution for the company to enable it to repay its loans. The period can be extended by another 90 days. No action can be taken against the company or its assets during these 270 days or the 9-month period. The key focus of the IP will be running the Company on going-concern basis. A resolution plan will have to be prepared and approved by the Committee of creditors.
Credit committee - A credit committee comprising creditors will be constituted. Related party will be excluded from the committee. Each creditor will vote according to voting share assigned. Any plan of resolution can be implemented only if 75% of creditors approve it.
Liquidation - If the company under the IP fails to come up with a solution within the 270 days, a liquidator will be appointed and all the assets will be liquidated to repay the debt. The company also goes into liquidation if 75% of the creditors do not come to a conclusion on likely resolution.