Interpreting the IampB Code Presented by Khushroo B Panthaky Chartered Accountant Bombay 18 June 2017 ICAI Aurangabad Contents why is the Code imperative ID: 616201
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Corporate insolvency in India - Interpreting the I&B CodePresented by: Khushroo B. Panthaky Chartered Accountant, Bombay18 June 2017 – ICAI, Aurangabad Slide2
Contentswhy is the Code imperative today?what are the highlights of the Code? what does the Code intend to change?what is the Insolvency eco-system?what are the potential challenges in implementation?how does the Code compare to UK legislation?what are the
opportunities
for us?Slide3
Why is the Code imperative today? improve ‘Ease of Doing Business’ ranking for India. address the NPA situation decisively reduce the time taken to resolve insolvency eliminate confusion caused by a complex judicial framework develop investor confidence – credit/bond or equitiesSlide4
Salient features of the Codeshift from balance sheet to cash flow testapproach adopted – “Creditor in control” exclusive jurisdiction of Adjudicating Authority – NCLT & DRTinitiation of CIRP – Lenders; Operational Creditors or Corporate Debtormoratorium starts immediately upon admission (within 14 days of application)liquidation in case CIRP failscross-border insolvency not adequately coveredSlide5
What the Code intends to change? Code makes a clear distinction between insolvency and bankruptcyallow genuine business failures a second chance provide a commercial solution to a commercial issue Code ensures certainty in the process of resolving insolvencyprovide confidence to lenders of their rights and their enforcement Slide6
What does it change for the lenders? more powers with lenders when faced with default and promoters stayed in controlprotection from existing and imminent litigation need closer monitoring of borrowers businessesneed to work closely with all major lenders – in consortium or otherwiseinternal processes need to be streamlinedclear priority of distribution (waterfall) upon liquidationSlide7
What does it change for the borrowers? low thresholds for initiation of insolvency proceedingsloss of control over management and operations during the resolution process borrowers to focus on liquidity and minimise payment delaysneed for more transparent and proactive relationship with lendersstrong penalties for fraudulent diversion of assets Slide8
How can the Code help fast-track resolution? lender inertia during resolution process to have severe consequencesmake it attractive for investors to invest into stressed/ distressed situations moratorium clause shall ensure smooth insolvency resolution process competitive platform for best results for the company limited role of the judiciary and Code has over-ride priority over any other conflicting law in the countrySlide9
Insolvency and Bankruptcy EcosystemInsolvency Bankruptcy Board of India (IBBI)Apex body governing Insolvency and Bankruptcy Codewill set up the necessary infrastructure and accredit IPs & IUs
Insolvency Professionals
(IP’s)
Licenced professionals registered with IPA and regulated by IBBI; will conduct
the resolution process; act as Liquidator; appointed by creditors and will assume powers of the board of directors
Insolvency Professional
Agency (IPA)
Professional bodies registered by IBBI to promote and regulate insolvency profession. IPAs would admit IPs as members
Currently there are three IPAs registered under the 3 major professional institutes - ICAI; ICSI and Cost Accountants
Information
Utility (IU)
Centralised repository of financial and
credit information of borrowers
IUs will
validate the information and claims of creditors
Adjudicating Authority (AA)
AA would have be exclusive jurisdiction to deal with insolvency related matters.
National Company Law Tribunal (NCLT) would be AA for Corporate and LLP insolvency
Debt Recovery Tribunal (DRT) would be AA for individual or partnership insolvency
Committee of Creditors (COC)
Consists of financial creditors who will appoint and supervise actions of IP’s;
approve the resolution plan etc
Where
no lenders or all related parties, operational creditors can constitute
CoCSlide10
Challenges in implementationno timeline for disposal of appealsshortage of NCLT benchesshortage of skilled professionals non co-operative managementlack of consensus among lendershigh cost of bankruptcy resolution processinterplay of other regulators like SEBI, RBI and MCASlide11
How does the Code measure with the UK? Key similarities:creditors drive the process; licensed IPs run the process any creditor or the debtor can initiate the processmoratorium provided during the insolvency periodclear waterfall of payments outlined during liquidationmultiple IPAs (or equivalent) regulated by a Board
Key differences:
creditors’ involvement during the insolvency process
performance security/bond to be provided by the IP
voting rights of creditor classes and approval by majority
deadline for the completion of the CIRP and/or liquidation
remuneration of liquidator Slide12
Restructuring services to Lenders
Milestones
Grant Thornton services
Level of distress
Key actions
Performing debt
Signs of stress
Distress
Recovery
Insolvency
Contingency
& options
Restructuring
Review of business
Monitoring
Pre-lend reviews
Raising
debt
Attempt to refinance facility and avoid potential losses
Pre-lend reviews
Debt advisory and structuring
Review of specific risks or exposures (eg tax or pension liabilities
)
Independent business
review & feasibility studies
On-going monitoring procedures
Review of covenant compliance
Commercial
due
diligence
Set up internal processes and internal norms to deal with Insolvency Code
Financial restructuring
Operational restructuring
Separation of
assets
Financial modelling
Refinance of
facility – debt advisory
Execution of insolvency
procedures
Pre-packs (informal)
Liquidation
Interim Management
Fund raising and
M&A
Asset
recovery, Fraud, Disputes and
Investigations
Insolvency and asset recovery
Enhance or protect collateral to minimise exposure
Monitoring and
on-going strategy
Pre-lend support
Customer introduction
Facility granted
Borrower stress
Borrower distress
Exit – potential losses
Facility stress
Planned exitSlide13
CONCLUSIONQuestions?