Insolvency Law: Fair Value Made Mandatory To Get Fairer Bids

Published on 08 Feb 2018 by Tushar

In a move that may impact the valuation of stressed assets and bring in transparency in the bidding process, the Insolvency and Bankruptcy Board of India (IBBI) amended its regulations on Tuesday.

The changes will be effective as of Feb. 6 and pertain to the fair value of the stressed assets, evaluation matrix for potential investors, and timelines for the submission of the resolution plan to the committee of creditors. The insolvency regulations were introduced in November 2016 and have been amended five times since, including as recently as Dec. 31 last year.

insolvency and bankruptcy code

Fair Value

So far, the insolvency regulations required determination of only the liquidation value of the insolvent company by two registered valuers. Now, these valuers will also have to determine the fair value of the company. Fair value, along with the liquidation value, will have to be provided to the committee of creditors on a confidential basis.

The amendment defines ‘fair value’ to mean the realisable value of assets of the insolvent company, if they were to be sold between a willing buyer and seller as on the date on which insolvency application has been admitted, on an arm’s length basis, after proper marketing.

Evaluation Matrix: Ensuring Fairness

The second change relates to an ‘evaluation matrix’ that will have to be included in the invitation offered to prospective resolution applicants. The amendment states that the evaluation matrix refers to a set of parameters and the manner in which these parameters are to be applied while considering a resolution plan.

While the regulations do not indicate what these parameters could be, they have to be approved by the committee of creditors and may be amended and communicated within prescribed timelines. The evaluation matrix will have to be provided to resolution applicants before they submit their bids.

New Timelines

The recent amendments have now also laid down timelines within which resolution plans must be submitted to the committee of creditors and the National Company Law Tribunal.

If the invitation to resolution applicants includes an evaluation matrix, the applicants will have to submit their resolution plans at least 30 days before the last date of submission. Where an evaluation matrix is not included in the invitation itself and is provided subsequently, the applicants will have to submit resolution plans at least 15 days before the last date of submission.

These timelines will not apply for ongoing insolvency processes if less than 37 days are left for submission in the former case, and less than 18 days in the latter.

Further, the resolution professional will have to submit the plan, approved by the committee of creditors, to the NCLT at least 15 days before the expiry of the maximum period permitted for completion of the resolution process.

The final change is on the contents of a resolution plan, which must now compulsorily provide for necessary measures to maximise value of assets. An inclusive list of such measures is provided in the amendments which includes a merger or consolidation of the insolvent company, reducing the dues owed to creditors, change in terms and conditions of loan, including reduction of interest rate etc.

Source- Bloombergquint.com


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