{"id":2966,"date":"2016-05-08T20:37:50","date_gmt":"2016-05-08T15:07:50","guid":{"rendered":"https:\/\/www.indiaeconomyandbusiness.com\/is\/?p=2966"},"modified":"2022-10-28T18:54:44","modified_gmt":"2022-10-28T13:24:44","slug":"the-insolvency-bankruptcy-ii","status":"publish","type":"post","link":"https:\/\/www.indiaeconomyandbusiness.com\/is\/the-insolvency-bankruptcy-ii\/","title":{"rendered":"The Insolvency &amp; Bankruptcy Code &#8211; (Part II)"},"content":{"rendered":"<p><img decoding=\"async\" class=\" wp-image-2960 aligncenter\" src=\"https:\/\/www.indiaeconomyandbusiness.com\/is\/wp-content\/uploads\/2016\/05\/id-1002357322.jpg\" alt=\"id-100235732\" width=\"180\" height=\"126\" \/><\/p>\n<ul>\n<li>The objective of\u00a0resolution plans is to find a way to keep the company running\u00a0with change in management control. So, if another company or an investor finds value in the company after due diligence, he may put forward his proposal to take control.<\/li>\n<\/ul>\n<p><!--more--><\/p>\n<ul>\n<li style=\"text-align: justify;\">This also makes the process more transparent as everyone is free to make a proposal preventing a promoter and a bidder to collude to strip the company of valuable assets at the cost of creditors or other stakeholders.<\/li>\n<li style=\"text-align: justify;\">The committee of creditors shall deliberate on all the proposals\u00a0submitted and shall have to approve a plan with\u00a0not less than 75% of vote share. If the company&#8217;s default is acted upon\u00a0early, it is highly likely that value erosion would be limited to equity only, as normally, a company runs with minimum of 30% equity share. In such a situation, chances of finding\u00a0a viable\u00a0proposal\u00a0where creditors interest is fully protected is quite high.<\/li>\n<li style=\"text-align: justify;\">However, if the committee is unable to reach a decision on this, the authority shall order the process of liquidation through a liquidator, which means sale of all the assets and proportionate sharing of proceeds.\u00a0The liquidator shall\u00a0sell the assets of the company\u00a0by &#8220;public auction or private contract&#8221;. The proceeds shall then be distributed proportionately as per the\u00a0mechanism detailed in the Act.<\/li>\n<li style=\"text-align: justify;\">It would be worthwhile to mention the clause\u00a0&#8220;or private contract&#8221; in the Act. The clause aims to speed up the liquidation process but has severe potential to be misused. In cases of factories, it is easy to show\u00a0a machine with, say just a few missing screws as irreparable and hence commanding only value of scrap. Probably, soliciting the service of a technical valuer before conducting private contract could have reduced the risk.<\/li>\n<li style=\"text-align: justify;\">It may be further noted that the role of\u00a0interim resolution professional (to be replaced by resolution professional within 30 days) is very critical as per the Act. On one hand he has to run the company on a going concern basis, even raise interim finance, if needed and on the other hand, he has to coordinate with creditors, other interested parties and take forward the resolution process. The Act, therefore, has a long list of Do&#8217;s and Don&#8217;ts for the professional.<\/li>\n<li style=\"text-align: justify;\">While the Act is very exhaustive\u00a0there is no mention of\u00a0the cases where a company wants to close an outdated, loss making plant even though the company overall is able to absorb those losses. It will have to be seen if a company can transfer such a plant into a subsidiary and put it\u00a0up for liquidation, after meeting other requirements.<\/li>\n<\/ul>\n<p style=\"text-align: justify;\">The Act comes a little too late in the journey of evolution of Corporate India. How far it goes in protecting the interests\u00a0of various stakeholders or how willingly the stakeholders accept the outcome of a resolution\/ liquidation process will be a testimony of our ability to make foolproof laws..!<\/p>\n<p style=\"text-align: justify;\">First Part &#8211;\u00a0https:\/\/www.indiaeconomyandbusiness.com\/is\/2016\/05\/08\/insolvency-and-bankruptcy-code\/<\/p>\n<p>(Image courtesy of jesadaphorn at FreeDigitalPhotos.net)<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The objective of\u00a0resolution plans is to find a way to keep the company running\u00a0with change in management control. So, if another company or an investor finds value in the company after due diligence, he may put forward his proposal to take control.<\/p>\n","protected":false},"author":8,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[855,857,860],"tags":[34],"class_list":["post-2966","post","type-post","status-publish","format-standard","hentry","category-banking-finance-2","category-economy","category-policy-2","tag-rbi","membership-content","access-restricted"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The Insolvency &amp; Bankruptcy Code - (Part II) - Indian Economy &amp; Business Analysis<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.indiaeconomyandbusiness.com\/is\/the-insolvency-bankruptcy-ii\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Insolvency &amp; Bankruptcy Code - (Part II) - Indian Economy &amp; Business Analysis\" \/>\n<meta property=\"og:description\" content=\"The objective of\u00a0resolution plans is to find a way to keep the company running\u00a0with change in management control. 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