IBA seeks exemption from shareholder nod in insolvent co sale

The banking industry has sought exemption from shareholder approval for change in capital structure or sale of assets or company during insolvency proceedings.

Indian Banks' Association (IBA), the umbrella body of banks, has sought the intervention of Insolvency & Bankruptcy Board of India (IBBI) to address a number of issues that may crop up while carrying out Corporate Insolvency Resolution Plan (CIRP).

It said would be difficult to get if a large portion of shareholding in private or public limited company are held by a promoter, promoter group or associates.

The association made a strong case for deep examination of the issues by the Ministry of Company Affairs, and if required, it should be exempted from shareholder approval.

IBA in its memorandum to IBBI this month suggested that circulation of liquidation value to prospective investors should be done only if the resolution plan (RP) fails and winding up process is invoked. ''Revealing the liquidation value leads to bids being received around the liquidation values which impacts true price recovery,'' IBA said.

An IBA executive told DNA Money, "Banks are taking various steps to tackle large non-performing assets through National Company Law Tribunal (NCLT)-mediated resolution mechanism. However, banks are facing some difficulties which need to be addressed for the effective implementation of CIRP.''

According to IBA, the 30-day limit given for valuation is too short for multi-location large plants and some flexibility for exposures above Rs 5,000 crore needed to be provided.

IBC stipulates that all members of committee of creditors (CoCs) have to necessarily vote on every resolution. The voting is reckoned on the basis of total value attributed to the creditors. "Various acts currently provide for approvals to be binding on stakeholders based on the concept of 'present and voting'. It is recommended that even under IBC, voting shares be considered on the basis of present and voting,'' said IBA in its representation.

On the role of interim resolution professionals (IRPs) and CoC, IBA has pointed out that IRPs are not agreeable to business valuation as it is not required under the code. Without this lenders will not have a benchmark to assess a resolution plan.

"There are instances where IRPs insist on the grant of interim finance by banks which at times are intended for meeting payment obligation to operational creditors including related/sister concerns. Interim finance should be for the minimum amount required for holding on operations, and not to expand capacity utilisation. This should happen after RP is implemented and the company is handed back to new board and management," said IBA.

This apart, IBA has suggested that a mechanism include a few representatives of depositors with an appropriate voting share for their participation in voting.

WHAT IBA WANTS

• Liquidation value should be made available only if the resolution plan fails
   
• It said the 30-day limit for valuation too short for multi-location large plants
   
• All members of committee of creditors have to vote on every resolution