The insolvency regulator, Insolvency and Bankruptcy Board of India (IBBI), proposes to ban the appointment of commission agents for the sale of assets in a liquidation process. It is of the view that the appointment of commission agents is an additional burden on the liquidation estate, in addition to overlapping of work with the liquidator and, should, therefore, must be avoided.

With the evolution of the market, there are many alternative methods to tap a larger pool of potential bidders rather than relying on such commission agents, said the IBBI in a discussion paper on strengthening the regulatory framework of liquidation process. The IBBI highlighted that one option could be to use the services offered under the platform for distressed assets (PDA) besides many online platforms to list assets for sale for free or for a negligible amount.

Greater visibility

Such means may be explored to extend the reach to stakeholders, maximise the value of distressed assets and ensure transparency, said the IBBI. Also, the board is contemplating to provide the facility to liquidators to upload auction notices on its website, which would allow greater visibility for the assets being sold and curtail the information asymmetry in the process.

Marketing strategy

The discussion paper now proposes to stipulate that a liquidator will have to prepare a marketing strategy for the sale of assets of the corporate debtor, in consultation with the stakeholders consultation committee (SCC).

Commenting on the IBBI proposal to ban the appointment of marketing agents on commission/ success-fee basis for sale of assets, Ruby Singh Ahuja, Senior Partner, Karanjawala & Co, said the board rightly proposes to do away with this since such a structure imposes additional burden on the liquidation estate, coupled with duplicity of work.

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“It is clear that going forward the board not only wants to make the sale of assets a more transparent process, but also has recommended full involvement of the stakeholders for all significant matters relating to the liquidation process, including the manner to be adopted for sale of assets,” she said.

Ahuja also said that the proposal is the need of the hour since it has been observed in some cases that stakeholders have not been kept in the loop by the liquidator, which results in the abuse of the process.

“Greater involvement of the stakeholder committee in the complete process, beginning from the appointment of the professional and leading to the sale of assets, is essential to keep checks and balances in place,” she added.

Different perspective

Bikash Jhawar, Partner, Saraf & Partners, had a slightly different take on the proposal. He said that liquidation is not an easy task, and to sell assets, multiple sales and broking firms may be needed. For instance, real estate sales happen through brokers. The sale of businesses does require merchant bankers in most cases.

These costs, as per industry practice, is commission-based and so the IBBI should be cautious in involving itself in arrangements that can distort particular market’s realities, he added.

Meanwhile, IBBI, in the same discussion paper, proposes that if secured creditors having 60 per cent of the value of the secured debt decide to relinquish or realise their security interest, such a decision would be binding on other pari passu charge holders as well.

Ahuja said that such a step will help deal with those situations where a stalemate is created because a creditor having relatively a smaller interest in the security may decide not to relinquish the same, which can stop the entire sale process.