IBBI tweaks norms to bar failed promoters from resolution plan

To weed out the possibility that the control of an ailing debt-ridden company goes back to its failed promoters, the Insolvency and Bankruptcy Board of India (IBBI) has tweaked the norms for the debt resolution plans.

The insolvency authority has notified that the plan proposed by the buyers of stressed assets will be put through tough due diligence tests. The past records of applicants including the promoters will be verified for creditworthiness. IBBI has made necessary amends to the Corporate Insolvency Resolution Process Regulations to empower the committee of creditors so as to reach a credible and viable rescue plan.

The aim of the insolvency proceeding is to resolve the conflict between the debtors and creditors by either reviving the company or liquidating its assets in a time-bound manner.

There are five steel companies that have been referred to the National Company Law Tribunal (NCLT) by the RBI. Among these, the Jindals who are promoters of Bhushan Steel and Ruias the promoters of Essar Steel, have expressed their intent to participate in the insolvency proceeding.

Bankers and lenders fear that these promoters may use aliases such as shell companies to regain control of their troubled companies. Due to credibility issues, banks favour liquidation more than a debt rejig plan under the Bankruptcy Code. Many private equity firms are also looking to buy these distressed assets as an arbitrage opportunity.