Credit ratings agency, Crisil Ratings in its latest report stated that the recent amendments in the Insolvency and Bankruptcy Code (IBC) will help to reduce timelines, enhance transparency and improve realisations. It also said that the amendments will help safeguard the interest of lenders by maintaining the residual value of assets and also spur the pace of resolutions under the bankruptcy resolution framework.
The report said that the fine-tuning of the contentious Section 29(A) of the IBC will open opportunities for resolution applicants to bid once their eligibility is proven, and exempts financial entities from being disqualified from bidding. It added that the reduction in minimum voting threshold for the Committee of Creditors (CoC) to 66% from 75% for key decisions, and for routine decisions can reduce resolution timelines to 51% from 75%.
Crisil said that the move to allow promoters of Micro, Small and Medium Enterprises (MSMEs) not categorised as ‘wilful defaulters’ to bid for their assets will reduce liquidation proceedings and improve the loan recovery rate of banks, and added that it will also aid genuinely distressed companies. It also said that getting the homebuyers on par with financial creditors provides much-needed clarity, especially with respect to cases undergoing resolution under the IBC, where homebuyers are de facto creditors. It further said that the changes in Sec 29(A) will also lessen the haircuts that banks may have to take as more companies get qualified for bidding.