In a move aimed at speeding up the liquidation process, the Insolvency and Bankruptcy Board of India amended its regulations to allow a corporate debtor’s asset that is “not readily realisable” to be transferred to a third party in consultation with stakeholders.
Creditors can also transfer debt due to them to a third party during the liquidation process to benefit creditors who may not be willing to wait for completion of the process.
The Insolvency and Bankruptcy Code envisages early closure of the liquidation process so that the assets of the debtor are released for alternative use expeditiously, IBBI said.
“However, the process takes longer where the liquidation estate includes a not-readily realisable asset,” IBBI said in a statement on November 13.
The board defined the term ‘not readily realisable asset’ as any asset included in the liquidation estate that could not be sold through the available options and included contingent or disputed assets and assets underlying proceedings for preferential, undervalued, extortionate credit and fraudulent transactions
If such an asset cannot be assigned or transferred, the liquidator may distribute the undisposed assets among stakeholders, with the approval of the adjudicating authority, it said.
While 14% of overall insolvency cases resulted in a resolution plan, 53% ended up in liquidation, with almost half of the active liquidation processes stretching over a year.
According to IBBI, creditors with low financial capacity or those cleaning their balance sheets may be interested in receiving dues instantly, even at a discount, rather than wait out the liquidation process to receive a higher pay-out.
The transfer of debt by a creditor to a third party with better financial capacity may lead to improvement in allocation of resources in the economy, it said.
Source : Times Of India