Money & Banking

Stressed corporate assets: For bidders, it’s all or nothing

K Ramkumar Mumbai | Updated on January 30, 2018

In the recent Roofit Industries case, the NCLT ruled against piecemeal asset sales

Bidders looking to buy select assets of a distressed corporate under the Insolvency and Bankruptcy Code (IBC) process may be in for a disappointment.

A recent ruling by the Mumbai Bench of the National Company Law Tribunal (the Adjudicating Authority under the Code) makes it plain that bidders have to acquire all the assets of a distressed corporate debtor put on the block.

What this means is that piecemeal offers to buy assets are unlikely to pass muster.

In the case, pertaining to Roofit Industries, the RP (Resolution Professional, Advocate Jitender Kumar Jain) filed an application for liquidation of the corporate debtor under IBC since the CIRP (corporate insolvency resolution process) period of 180 days ended on December 26, 2017, and no resolution plan had been received by the RP, except for the B-42 Gummidipoondi Factory, submitted by the Gummidipoondi Roofit Employees’ Welfare Association.

CIRP was initiated for Roofit Industries on its own petition, by an NCLT order in June 2017.

No resolution

Considering the fact that the resolution plan submitted by the Employees’ Welfare Association was only in respect of the Gummidipoondi Factory, excluding other units, the NCLT Bench was of the view that the resolution plan could not be consideredas a resolution under the Code.

“….We are of the view that this is a fit case to pass liquidation order as mentioned under sub-section 2 of Section 33 of the Code and, accordingly, the corporate debtor is ordered to be liquidated,” said the NCLT Bench, comprising Members BSV Prakash Kumar and V Nallasenapathy.

Roofit Industries has nine immovable assets, including land, building, plant and machinery, shop and office, spread across Maharashtra, Tamil Nadu, Telangana and Kerala.

According to S Ravi, a practising chartered accountant, “Piecemeal or part-selling will only give so much recovery. The enterprise value will not be realised. The whole idea behind IBC is to ensure that a distressed company undergoes resolution without losing too much of its value.

“However, in case of liquidation, the aim is to ensure that assets are disposed in an efficient manner so that financial and operational creditors are repaid to the maximum.”

Doubling up as liquidator

To the resolution professional’s plea that he is not willing to act as a liquidator of the corporate debtor, the Bench underscored that the IBC provides that where the Adjudicating Authority passes an order for liquidation of the corporate debtor, the resolution professional appointed for the CIRP process shall act as a liquidator unless replaced by the Adjudicating Authority.

In view of this provision, the Adjudicating Authority said it could not concede the request of the applicant.

Apart from this, given that the resolution professional had dealt with the corporate debtor for the last six months, the Bench observed that it was not advisable to make somebody else a liquidator for the mere reason that no funds were available with the corporate debtor to remunerate the RP.

The Bench directed that the fee shall be paid to the liquidator as envisaged under the relevant regulation of the Insolvency and Bankruptcy Board of India (Liquidation Process), which forms part of the liquidation cost.

Published on January 29, 2018

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