Corporate insolvency overhaul: IBBI plans to allow part sale of assets or business under resolution process

 In a significant move, insolvency regulator IBBI proposes to allow resolution (sale) of part assets/ businesses of corporates facing insolvency proceedings.

However, such an approach can be explored by resolution applicants and creditors only when no resolution plan is received within the timeline specified for submission of such plan, the IBBI has said.

This significant reform — in line with similar practices in foreign jurisdictions — forms part of the over dozen changes in corporate insolvency resolution process (CIRP) proposed by IBBI to reduce delays and improve the resolution value. These changes are reflected in a discussion paper on which IBBI has sought public comments.

If this proposal of allowing sale of part assets is implemented, the interest among prospective applicants — who are not interested in acquiring the entire business but keen on only certain parts — could increase as regards participation in insolvency resolution process, say insolvency law experts.

Currently, only during liquidation are assets sold in various parts but not in the corporate insolvency resolution stage . However, in sale during the liquidation stage, there is substantial loss in value. 

It maybe recalled that the Standing Committee on Finance in its 32nd report observed that bidders may be interested in selected business units or assets, rather than the entire business. A combination of bidders taking different business units or assets may well be far superior to one bidder acquiring the entire business. However, there seems to be very little effort in this direction and corporate debtors are pushed into liquidation, the Parliamentary Panel had said.

Experts’ take

Ruby Singh Ahuja, Senior Partner - Karanjawala & Co, a law firm, said the proposed amendment to the regulations will allow the Resolution Professional (RP) and the creditor to resolve part of the assets of the corporate debtor, in case no resolution plan has been received after the time has lapsed for submission of resolution plan. 

“This mode of partial sale of assets will help creditors recover at least part of dues otherwise under the scheme, as it exists, the corporate debtor will go into liquidation in case no plan is received under the prescribed timelines . Partial resolution of corporate debtor is certainly preferred as compared to liquidating as far as recovery of dues is concerned,” she added.

Kumar Saurabh Singh, Partner, Khaitan & Co, a law firm said: “As regards the proposal to sell assets of the corporate debtor in parts, it is a very welcome suggestion as such a sale would ensure benefits of approval of sale through resolution process which binds all stakeholders. Otherwise liquidation sale of business/units as a going concern comes with risk of assuming liabilities linked to the asset in absence of a provision like section 31 (1) of IBC order for liquidation sale.”

This can help in resolution of a lot of assets/corporate debtors that get pushed into liquidation in absence of a buyer putting proposal for the entire company, Singh said.

Gautam Bhatikar, Partner, Phoenix Legal, said the most important changes that will hold practical importance and smoothen dilemmas faced by the IRP/ RP are changes to the timeline for publication of invitation of EOI and the information memorandum. One of the most helpful propositions keeping in mind the insolvency models followed in foreign jurisdictions is the resolution of part assets/ business of the CD, which may increase the interest of the prospective applicants who are not equipped or interested to acquire the entire business of the CD, Bhatikar said.

The other changes proposed in the discussion paper include stipulation of framing of strategy for marketing of assets by resolution professional where the claims are in excess of ₹100 crore; prescribing what minimum details should form part of CDs business in the Information Memorandum; aligning timelines for various actions based on the practical experiences; geo-tagging of fixed assets of CDs; repeat valuation in case of delays to arrive at the correct value of CDs assets and mechanism to calculate dissenting financial creditors, etc.

Ashish Gupta, Partner, Chadha & Co, said the proposed amendments by IBBI in the CIRP will bring much needed relief to all stakeholders including the corporate debtor, RPs, creditors, etc.