NEW DELHI: The government on Wednesday recommended an ordinance to tighten the rules and prohibit promoters of companies facing insolvency proceedings from bidding by the affected entities, in a measure that will prevent several commercial families from competing with their competitors and funds foreign. .
In addition to seeking to prohibit offers from voluntary defaulters, the Bankruptcy and Insolvency Code will be modified to disqualify a contaminated promoter who has control of an entity that has been an "unproductive badet" for a "prescribed period" , which can be arranged in a year. A continuous loan default for 90 days obliges banks to clbadify a borrower as NPA.
The one-year clause will make the promoters of some of the 12 big companies facing insolvency actions, such as the Ruias of Essar Steel and Singhals of Bhushan Steel, ineligible to submit financial offers for their companies next month . The bankers said both entities were clbadified as NPAs in 2015. At the same time, they can help reduce competition for companies such as JSW, Tata Steel, Arcelor Mittal and Nippon Steel and have the risk that the offers will be less aggressive.
The 12 companies, which account for almost a quarter of the NPAs, were referred to the National Law Law Tribunal by banks led by State Bank of India and IDBI Bank after the Reserve Bank of India intervened to clean the pile without precedents of the bad debt that added to almost Rs 8.4 lakh crore in the last count. The list includes Bhushan Power & Steel, Jaypee Infratech, Monnet Ispat, Amtek Auto and ABG Shipyard.
Finance Minister Arun Jaitley told reporters that the cabinet had recommended amendments but did not comment on the provisions. The details of the ordinance are only expected after President Ram Nath Kovind approves it. With the winter session scheduled for December 15, the ordinance is likely to be enacted in the coming days.
The government promulgated the Bankruptcy and Insolvency Code last year, which provides for a reactivation plan in a maximum period of 270 days. During this period, the company is managed by a resolution professional appointed by NCLT. The government chose to amend the law in less than a year, as it feared that some developers might end up acquiring the company at a heavy discount, leaving the banks to deal with the loan pile.
"It is likely that several cases have a pending long-standing breach that requires a deep haircut for creditors, so it is necessary to ensure that the promoters of the corporate debtor or the company, which was found to have contributed to non-compliance, you should avoid regain control through the entrance of the back door with the attire of a resolution applicant, "said a source.
The ordinance also gives more powers to the Bankruptcy and Insolvency Board of India to prescribe eligibility rules for potential bidders or resolution applicants, taking into account the complexity and scale of operations of the companies of the company sick.
Lenders and industry experts are watching closely how the government defines the "prescribed period" and its implications for the general business environment. "A company comes under financial stress for several reasons, such as technological obsolescence or sudden changes in policies, including judicial pronouncements, such as the cancellation of coal blocks or the spectrum.When banning all promoters, may be hitting the business environment "said a senior executive with a leading bank.
Industry experts also said that some of the regulations proposed by the government opened the door to more litigation. For example, a promoter can be clbadified as a voluntary non-compliant and can not submit an offer, but the court voids the lender's decision later.
"The disqualification on account that the debtor is a non-performing account is hard as there could be genuine reasons for non-compliance Companies are successful, but they also fail and a good faith failure should not be punished. society, we must learn to forgive an unfortunate debtor and give it a second chance.The failure can also be as legitimate as success, "said Sumant Batra, managing partner of the law firm Kesar Dbad B & Associates, who is involved in several cases.
In addition to the 12 companies that are already in several stages of resolution, at least 40 other companies are being reviewed by the banks after an RBI directive and the ordinance will also have an impact on them.