As insolvency proceedings at some of 12 stressed accounts identified by the RBI earlier this year are moving forward, key question that has emerged is whether promoters of these companies are better placed to get back control in the bidding process.

Earlier this week, several steel industry majors have submitted their interest for a resolution plan for debt-ridden Essar Steel Ltd, a part of Essar Group, to the appointed insolvency resolution professional (IRP).

The company's promoters, Ruias, have also emerged as one of the bidders.

“Essar Group has submitted EoI for Essar Steel and a resolution plan will be submitted to IRP within the scheduled time-frame,” V Ashok, CFO, Essar Group, told BusinessLine .

“IBC allows promoters to bid for their company at the NCLT and there are no limitations. The entire process is on purely commercial basis and the final selection is done based on the highest bid offered for the NCLT company,” he said, adding that the practice of promoters being permitted to bid in bankruptcy or insolvency cases is prevalent in the US, the UK and many developed and developing countries.

Entrepreneurial spirit

In the first insolvency resolution order under Insolvency and Bankruptcy Code (IBC) pronounced by the National Company Law Tribunal (NCLT) in August this year, the resolution plan for Synergies-Dooray Automotive Ltd (SDAL), an alloy wheels manufacturer, was offered by the related party - Synergies Casting Ltd, an SPV formed with the permission of the lenders.

However, in a more recent case of Pune-based Innoventive Industries Ltd where two resolution plans were proposed, including one from the promoters, both plans were rejected by a committee of creditors (CoC) and the company was moved for liquidation.

According to Mamta Binani, immediate past president of Institute of Company Secretaries of India (ICSI) who acted as IRP for Synergies-Dooray, the law does not intend to exclude promoters from coming out with a resolution plan.

“The intent of the law is very clear, anybody should be allowed to put in the resolution plan, and if we go deeper in the law, we will see that the entrepreneurial spirit has to be protected and taken to the positive flow. If someone has not been able to do well because of external or internal factor, let them get one last chance to rehabilitate or restructure themselves, if the committee of creditors allows them so because it is up to the COC to reject the promoters' plan if its not better than what other parties may have offered," Binani added.

Developing industry

IBC does not place any restriction on who can propose a resolution plan for a company under CIRP, Aparna Ravi, Counsel at Samvad Partners and a member of the Bankruptcy Law Reform Committee, agrees. “Yes, on one hand allowing promoters (to bid for the company after CIRP is invoked) seems to defeat the idea of the IRP taking over and the COC deciding on the resolution plan, but practically speaking, in the Indian context, most of the companies that have filed for insolvency are very complex businesses and the promoters are the ones with all the know-how on the business. In these situations, it is more likely for the promoters to be part of the resolution plan than for an outside buyer to come in”, she suggested.

According to Ravi, it is too early to predict the way ongoing insolvency proceedings will go as insolvency resolution is a new industry in India.

“It will take time before insolvency professionals are able to develop the expertise and mobilise the resources to actually run a company. Also, in other countries there is a market for buyers looking to purchase distressed assets. This is at a relatively nascent stage in India because without the IBC, it was difficult for such buyers to come in,” she said.