The Indian Banks’ Association (IBA) has come up with a revised model assignment agreement (AA) and model trust deed (TD) for transfer of loan exposures of lenders to asset reconstruction companies (ARCs) in the wake of increasing use of the Insolvency and Bankruptcy Code (IBC), 2016, as a resolution mechanism, and introduction of the framework for resolution of stressed assets in 2019.
The earlier model AA and model TD for sale of loan assets by banks to ARCs pre-dates both IBC and the framework for early recognition, reporting and time bound resolution of stressed assets. This model was first adopted by banks and ARCs in 2013.
The aforementioned documents, which have been standardised, now have embedded features that could give comfort to foreign investors to take exposure to loans being purchased by ARCs.
Lenders (banks/financial institutions/ non-banking finance companies) will have to disclose details to assignees (ARCs) whether any proceedings for winding up, bankruptcy or liquidation or restraint or attachment of any properties have been initiated against borrowers.
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They will also have to reveal details whether the assigned loans have been rescheduled or any other relief has been granted to borrowers.
The lender will be required to make “representations and warranties” to the buyers of stressed assets that to the best of its knowledge there are no proceedings for winding up, CIRP (corporate insolvency resolution process), personal insolvency, bankruptcy or liquidation or restraint or attachment of any properties of the borrower.
Model trust deed
Going by the model Trust Deed, the Trustee (ARC) has to submit all such information as may be required by the Security Receipt holders in respect of the financial assets and/or the borrower.
This includes submission of all such information that the Trust and/or the Trustee may become privy to as a financial creditor of the borrower (including upon initiation of any insolvency proceedings against the borrower under the IBC, 2016 or any other analogous process thereto).
The model template can be customised to facilitate alignment with the specific commercial terms of transfer of such exposures on case-to-case basis as mutually arrived at between the assignor and assignee.