Wilful loan defaulters can't bid to buy back their assets

Tightening its fledgling bankruptcy and insolvency rules, the government on Thursday barred wilful loan defaulters from bidding to buy back their assets when they are auctioned as part of bankruptcy proceedings.

The President gave his assent to an ordinance to amend the bankruptcy code, thereby barring wilful defaulters and entities whose accounts have been classified as NPAs from bidding for assets under the insolvency law.

The Corporate Affairs Ministry's statement said that the oder has been passed to "keep-out such persons who have wilfully defaulted, are associated with non-performing assets, or are habitually non-compliant and, therefore, are likely to be a risk to successful resolution of insolvency of a company."

The statement further said, "Those who have their accounts classified as non-performing assets for one year or more and are unable to settle their overdue amounts include interest thereon and charges relating to the account before submission of the resolution plan" would also be ineligible.

The ordinance said that corporates, promoters and associate companies undergoing insolvency resolution or liquidation under the Code would not be eligible for bidding for the stressed assets.

The amended Code added that Committee of Creditors (CoC) should ensure the viability and feasibility of a resolution plan before approving it. The statement further added that CoC should "reject a resolution plan, which is submitted before the commencement of the Ordinance but is yet to be approved".

SBI chairman Rajnish Kumar said, "The changes in the law will not bring down the valuation of the assets under resolution because there is lot of interest in these assets. Valuation has nothing to do whether the existing promoters are allowed to bid or not. Assets will go only on the fair value of the enterprise."

Speaking to media persons about the ordinance, Kumar said the amendments will not have any impact on the numbers of bidders who want to participate in the bidding process for such stressed assets.

"This presumption that there would be a few bidders is itself not correct. If there is value in any asset then we believe bidders will be very much interested. If you look at the expression of interest for many of the companies that are under NCLT, there is a good interest," he said.

Kumar said that certain criteria such as credibility of the bidders and a sound resolution plan will be checked before selecting a final bidder. "We will be careful about a couple of things. The first thing is that resolution has to be very credible because the idea is that if we can save the asset from liquidation and we should save it. Secondly, when we are talking about resolution, the credibility of those who are bidding would also be examined," Kumar added.

When asked if he is happy with the current amendments, Kumar said, "I will be happy when the resolution happens. I don't mind some haircut but I don't want to be bald." 

The Reserve Bank had in June asked lenders to refer the 12 largest NPA accounts to the National Company Law Tribunal (NCLT) for resolution under the bankruptcy code. The combined debt of these accounts is Rs 2.4 trillion.

Some of the accounts include Bhushan Steel, Essar Steel, Bhushan Power, Lanco Infra, Amtek Auto among others. Of these 12 accounts, 11 are at various NCLTs and interim resolution professional (IRPs) have been appointed. These resolution professionals have invited expressions of interest for a resolution plan from prospective investors.

Again in August, the RBI had tagged 28 more large accounts for resolution through NCLT, which have to be resolved by December 13.

The code, which became operational in December last year, provides a market-determined and time-bound insolvency resolution process. Over 300 cases have already been approved by the National Company Law Tribunal (NCLT) to be taken up under the law, implemented by the Corporate Affairs Ministry.

(With Agency Inputs)