Promoters in shock as govt shuts them out

Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, which received president's nod on Thursday, has literally shut out many promoters who are trying to win over their debt-ridden companies that are currently at the National Company Law Tribunal (NCLT) or in the process of insolvency. The ordinance has identified several people disqualified from submitting resolution plans for these companies.

While wilful defaulters, directors and their relatives are kept out, promoters, whose accounts are classified as non-performing assets (NPAs)for over one year, are also disallowed to participate in bidding unless they pay all overdue amounts with interest and charges relating to NPAs before submission of the resolution plan. Surely, these amendments will save the government blushes in a situation where promoters seek massive haircuts from banks. There is clarity that the people who have caused the insolvency or losses to the banking system cannot be beneficiaries of the very asset that they have rendered non-performing at a reduced cost.

Many analysts cite the massive bad loan pile-up and higher proportion of wilful default cases as reasons that forced the IBC amendment and weeding out of unscrupulous promoters. Some, however believe that the changes will disqualify a whole cross-section of people from making resolution applications at NCLT, in turn depressing the value of assets on sale and ultimately cause a loss to the banking sector itself.