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Unraveling Corporate Insolvency in India: A Guide to the I&B Code

Explore the significance, features, and impacts of the Insolvency & Bankruptcy Code in India, comparisons with UK legislation, opportunities, challenges, and insights for lenders and borrowers. Learn about fast-tracking resolution, ecosystem challenges, UK contrasts, and restructuring services.

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Unraveling Corporate Insolvency in India: A Guide to the I&B Code

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  1. Corporate insolvency in India - Interpreting the I&B CodePresented by:Khushroo B. PanthakyChartered Accountant, Bombay18 June 2017 – ICAI, Aurangabad

  2. Contents • why 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 opportunitiesfor us?

  3. 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 equities

  4. Salient features of the Code • shift from balance sheet to cash flow test • approach adopted – “Creditor in control” • exclusive jurisdiction of Adjudicating Authority – NCLT & DRT • initiation of CIRP – Lenders; Operational Creditors or Corporate Debtor • moratorium starts immediately upon admission (within 14 days of application) • liquidation in case CIRP fails • cross-border insolvency not adequately covered

  5. What the Code intends to change? • Code makes a clear distinction between insolvency and bankruptcy • allow genuine business failures a second chance • provide a commercial solution to a commercial issue • Code ensures certainty in the process of resolving insolvency • provide confidence to lenders of their rights and their enforcement

  6. What does it change for the lenders? • more powers with lenders when faced with default and promoters stayed in control • protection from existing and imminent litigation • need closer monitoring of borrowers businesses • need to work closely with all major lenders – in consortium or otherwise • internal processes need to be streamlined • clear priority of distribution (waterfall) upon liquidation

  7. What does it change for the borrowers? • low thresholds for initiation of insolvency proceedings • loss of control over management and operations during the resolution process • borrowers to focus on liquidity and minimise payment delays • need for more transparent and proactive relationship with lenders • strong penalties for fraudulent diversion of assets

  8. How can the Code help fast-track resolution? • lender inertia during resolution process to have severe consequences • make 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 country

  9. Insolvency and Bankruptcy Ecosystem

  10. Challenges in implementation • no timeline for disposal of appeals • shortage of NCLT benches • shortage of skilled professionals • non co-operative management • lack of consensus among lenders • high cost of bankruptcy resolution process • interplay of other regulators like SEBI, RBI and MCA

  11. How does the Code measure with the UK? 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 Key similarities: • creditors drive the process; licensed IPs run the process • any creditor or the debtor can initiate the process • moratorium provided during the insolvency period • clear waterfall of payments outlined during liquidation • multiple IPAs (or equivalent) regulated by a Board

  12. Restructuring services to Lenders Milestones Customer introduction Facility granted Facility stress Planned exit Exit – potential losses Borrower stress Borrower distress Level of distress Signs of stress Distress Performing debt Recovery Raising debt Pre-lend reviews Monitoring Review of business Restructuring Contingency & options Insolvency Key actions Attempt to refinance facility and avoid potential losses Pre-lend support Monitoring and on-going strategy Enhance or protect collateral to minimise exposure Insolvency and asset recovery Grant Thornton services • 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

  13. CONCLUSION Questions?

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