The cabinet approved amendments to the Insolvency and Bankruptcy Code (IBC) to protect successful resolution applicants from criminal proceedings against offences committed by previous managements or promoters.
It also lowered the rating threshold for public sector banks to purchase high-rated pooled assets to BBB+ from “financially sound” nonbanking finance companies (NBFCs) and housing finance companies (HFCs) under the partial credit guarantee (PCG) scheme. Lowering the limit from AA will make more NBFCs and HFCs eligible for funds from banks.
MONETISING ROAD PROJECTS
It also approved the National Highways Authority of India (NHAI) plan to set up an Infrastructure Investment Trust (InvIT) and monetise road projects. This will help speed up monetisation of working assets and attract more funds to the sector.
IBC AMENDMENTS
Ring-fencing successful bidders from offences committed by previous managements will speed up the resolution process by giving comfort to buyers of stressed assets.
ET had reported last week that Lakshmi Mittal’s ArcelorMittal, which has successfully bid for Essar Steel through the insolvency process, had sought immunity from any future investigations pertaining to the company and its erstwhile promoters, the Ruia family.
The changes will help the Rs 42,000-crore resolution offered by ArcelorMittal to go through. Worries on this count had risen after the Enforcement Directorate had attached assets worth Rs 4,000 crore in Odisha of Bhushan Power and Steel Ltd, a company undergoing insolvency resolution, in a case related to the alleged diversion of bank funds. This has delayed a Rs 19,700 crore insolvency resolution plan proposed by JSW Steel. Proposed changes will ensure investigations do not stall insolvency resolution.
Other amendments include measures to ensure that corporate debtors undergoing resolution continue as going concerns. Licences, permits, concessions, clearances etc. cannot be terminated, suspended or not renewed during the moratorium period.
They also propose a threshold for financial creditors to prevent frivolous triggering of corporate insolvency, ensuring that bankruptcy isn’t invoked for small amounts.
Amendments are expected to be introduced in the ongoing session of Parliament.
Changes are being made to streamline the corporate insolvency resolution process (CIRP) and protection of lastmile funding, in a move that will help sectors such as real estate and infrastructure.
Experts say these amendments were badly needed. They will remove hurdles in the way of speedy resolution and also attract bidders.
“Preservation of licences, permits, quotas etc, which are core to the business of insolvent companies, and ensuring that no criminal action can be taken for past violations of resolved companies, will make resolution easier and will also increase the realisation for all stakeholders,” said Manoj Kumar, partner and head, M&A and transactions, Corporate Professionals.
RELIEF FOR NBFCS, HFCS
Lowering of rating threshold will provide significant relief to liquidity-starved NBFCs and HFCs and follows representations from them and banks. Not much disbursement has happened under the PCG mechanism because of the high threshold.
The move will help otherwise solvent NBFCs or HFCs avoid the distress sale of assets.
“The proposed government guarantee support and resultant pool buyouts will help address NBFCs/HFCs resolve temporary liquidity or cash flow mismatch issues, and enable them to continue contributing to credit creation and providing last-mile lending to borrowers, spurring economic growth,” the government said in a release.
The move will also protect the financial system from any “adverse contagion effect” that may arise due to the failure of such entities, the government added. The scheme will remain open until June 30, 2020, or till assets worth Rs 1 lakh crore are bought. The finance minister has been empowered to extend the scheme by three months.