The role of a resolution professional (RP) in insolvency proceedings can be very tricky as it requires the individual to delicately balance the interests of all the stakeholders involved, said panellists at News Corp VCCircle’s inaugural Stressed Assets Investment Summit on Wednesday.
Held in Mumbai, the half-day summit opened to a packed house attended by key stakeholders – investors, promoters, banks, legal experts, regulators, asset reconstruction companies (ARCs) and insolvency resolution professionals.
Bikash Jhawar, partner at Luthra & Luthra Law Offices, and Rajiv Chandak, partner-corporate finance & restructuring, Deloitte India, shared their experiences at a fireside chat on navigating the resolution process.
The duo have worked together on a few resolution processes in different roles.
As a case study, Chandak spoke about his role with a cement firm involved in insolvency proceedings.
“The plant was not operational and the company had no working capital. We had to seek support from vendors and stakeholders while also bring a fair resolution of workers and employees with their remuneration. It was a difficult proposition and had to find a resolution from all aspects,” Chandak said.
Jhawar highlighted how subtle differences in the law could lead to complications.
“Sometimes there is a difference in the letter of the law versus the spirit of the law. For instance, the court may freeze past liabilities to operational creditors (OCs)… On the other hand, OCs have the right to comment on the resolution plan,” Jhawar said.
The panellists also discussed certain challenges that may arise from the Reserve Bank of India (RBI) circular on February 12 that sought to accelerate the process of resolving non-performing assets, a move that will lead to an early identification of bad loans.
“Various firms dealing in resolution plans and insolvency proceedings have increased their team strength and other resources. But 150 accounts is a lot and challenging,” Chandak said.
Jhawar said that lenders sometimes found it difficult to find the right resolution consultant. “There is a question whether the ecosystem can accommodate such a number because even appeals filed in December are still sub-judice, and cases are not heard or resolved,” Jhawar said.
The RBI introduced a circular in February that abolished all restructuring schemes such as strategic debt restructuring (SDR), Scheme for Sustainable Structuring of Stressed Assets (S4A) for NPA resolutions.
Instead, RBI drew the reference date of 1 March and allowed time till 28 August to ascertain any defaulting account even by a single day. If so, the company would be considered a defaulter and would get 180 days to rectify the situation.
And if neither the bank nor the company is able to resolve, the matter would proceed to NCLT.
This development took place after the central bank, under previous governor Raghuram Rajan, had handed a list of 150 accounts through an asset quality review.
Project Sashakt
During the second fireside chat of the day, panellists discussed Project Sashakt, the government’s new five-pronged approach for expediting resolutions. The session was moderated by News Corp VCCircle CEO Jaideep Mehta and the panellists were Supratim Sarkar, EVP & Group Head (PA & SF) at SBI Capital Markets and RK Bansal, MD & CEO at Edelweiss ARC.
They said that NPAs and stressed assets have implications beyond the financial stress in the system and could trigger social problems, especially among the lower rung of the society.
“NCLT is not the only solution,” said Bansal, referring to the inter-creditor agreement among 24 banks to fast-track the resolution of bad loans.
Panellists also discussed the role of Asset Reconstruction Companies (ARCs), the Insolvency and Bankruptcy Code (IBC) besides talking about the future roadmap for resolving the stressed asset problems.
“Maximum cases of stressed assets are in the power sector. Foreign money won’t come in where there is too much government intervention. Besides the money or capital, you also need to see turnaround in the sector. Steel industry is an example,” said Sarkar, while discussing foreign investment in stressed assets.
The panellists also deliberated on the idea of privatising sectors under stress to achieve quicker resolution.
“Theoretically you can, but in reality it may open many challenges. It is not easy to privatise the power sector. There are various governmental schemes besides the political and social nature of the sector. Past legacy issues are so huge and need to resolved first if you wish to privatise the sector,” Sarkar said, referring to the huge debt pile of power distribution companies in Rajasthan.