Several mid-scale companies reach out to advisors following proposed changes in liquidation process

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Mumbai: Many mid-scale companies, especially in the mine and metals segment, are going back to the drawing board and analysing how the recent proposal by Insolvency and Bankruptcy Board of India (IBBI) could impact them.

Many of these companies want to try and revive their company as against letting it go under liquidation, say industry trackers.

The IBBI has proposed that companies applying for voluntary liquidation will be able to withdraw from the process at any time.

Experts said that the IBBI recommendations will also have long term implications.

“The recommendations around the liquidation process are set to have long term implications on several businesses and would also have a direct impact on jobs as many companies would look to revive rather than go under. Also, for many companies that were facing pressure due to Covid pandemic especially in sectors such as mine and metals, last one month has given hopes of revival and many lenders could sit down with promoters and look at alternatives,” said Girish Vanvari, the founder of tax advisory firm, Transaction Square.

Many companies that are looking at this option could also face some issues from the lenders, say industry trackers.

“The draft framework requires creditors’ approval in following situations where initiation of process of sale of assets; sale of assets; and (payment of any of the creditor. Considering we are dealing with solvent companies here, requiring creditors’ approval for the first situation appears to be harsh,” said Yashesh Ashar, Partner, Sudit K. Parekh & Co.

Many companies have been under severe pressure due to Covid pandemic but are seeing some revival in the last one month. These companies could look at the option.

“The proposed amendment is to allow for a fresh start if tides were to turn during the process. If COVID has taught anything, it is that there is indeed no certainty. It is therefore likely that hopes of revival emerge post the decision to liquidate has been taken. From this perspective, the amendment to ensure that a decision to liquidate can be suspended and a corporate debtor is allowed to restart its operations is a welcome change. While the law was silent, this was the practice followed by the tribunals and codifying the same would provide the required certainty. In addition, limiting the role of the Adjudicating Authority in such a process is also a welcome step,” said Veena Sivaramakrishnan, Partner at Shardul Amarchand Mangaldas & Co.

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