The Insolvency and Bankruptcy Code (IBC) of India, enacted in 2016, marked a significant shift in the country's insolvency and bankruptcy regime. It aimed to create a more efficient and time-bound process for the resolution of distressed assets, benefiting both creditors and debtors. Central to the IBC's success are the resolution applicants, entities or individuals interested in acquiring and reviving distressed businesses. In this blog, we will delve into the role of resolution applicants under the IBC, their significance, and the challenges they face.
Before we dive into the specifics of resolution applicants, let's briefly understand the IBC and its objectives. The IBC was introduced to streamline the insolvency and bankruptcy resolution process in India. Its main goals include:
1. Timely Resolution of Distressed Assets: The IBC sets strict timelines to ensure that insolvency cases are resolved swiftly, thereby maximizing the value of the business to be revived and, simultaneously minimizing losses to all stakeholders.
2. Maximizing Asset Value: The IBC aims to maximize the value of distressed assets by facilitating their sale to interested parties, which often leads to their revival and preservation.
3. Fair Treatment of Stakeholders: The code ensures equitable treatment of all creditors and stakeholders, eliminating any scope for preferential treatment.
4. Promoting Entrepreneurship: The IBC encourages entrepreneurship by providing a mechanism for individuals and businesses to resolve their financial difficulties and start afresh.
Resolution applicants are crucial players in the IBC process. They play a pivotal role in acquiring and reviving distressed businesses.
Here are the key aspects of their role:
1. Identification and Expression of Interest: A resolution applicant begins the process by identifying a distressed business undergoing insolvency proceedings and expressing their interest in acquiring it. This marks the initial step in the resolution process.
2. Due Diligence: Once their interest is accepted, resolution applicants conduct a detailed due diligence process to assess the financial, operational, and legal aspects of the distressed company. This involves a thorough examination of the company's books, assets, liabilities, and potential for revival.
3. Submission of Resolution Plan: Based on their due diligence and the parameters as laid down in the request for a resolution plan issued by the resolution professional, resolution applicants formulate a resolution plan outlining their strategy for reviving the distressed business. This plan must provide a viable strategy for repaying creditors and stakeholders while maximizing the company's value.
4. Competition with Other Applicants: In many cases, multiple resolution applicants may express interest in the same distressed company. The IBC encourages competition among applicants to secure the best deal for creditors and stakeholders.
5. Approval by Committee of Creditors (CoC): The complaint resolution plan(s) is/are presented to the Committee of Creditors, who evaluate and vote on its/their viability. If approved, the plan moves forward in the resolution process.
6. Implementation of the Plan: Once approved, the resolution applicant must implement the plan within the specified timeframe. This often involves taking control of the distressed business and working towards its revival.
The presence of resolution applicants is vital to the success of the IBC. Here's why they are significant:
1. Maximizing Asset Value: Resolution applicants are often well-positioned to identify the potential of a distressed business. By acquiring and reviving such businesses, they play a critical role in maximizing the value of the assets, which benefits both creditors and stakeholders.
2. Job Preservation: Many distressed companies employ a significant number of people. Resolution applicants, by reviving these businesses, can help preserve jobs and support economic stability in the region.
3. Debt Recovery: For creditors, resolution applicants are the means to recover their outstanding debts. The successful implementation of a resolution plan can lead to a higher recovery rate than in traditional insolvency/recovery proceedings.
4. Encouraging Entrepreneurship: The IBC encourages entrepreneurship by providing opportunities for individuals and entities to take over distressed businesses and turn them around. This, in turn, promotes economic growth and innovation.
While resolution applicants play a crucial role in the IBC process, they face several challenges in their pursuit of acquiring and reviving distressed businesses:
1. Competition: In cases where multiple resolution applicants express interest in the same distressed business, the competition can become fierce. Bidding wars can drive up the acquisition cost, potentially impacting the feasibility of the resolution plan.
2. Funding Constraints: Raising adequate funds to acquire and revive a distressed business can be challenging. Resolution applicants often need to secure financing from banks or financial institutions, which can be a complex process.
3. Legal and Regulatory Hurdles: The legal and regulatory environment in India can be complex, and resolution applicants must navigate a myriad of laws, regulations, and compliance requirements during the resolution process.
4. Operational Turnaround: Reviving a distressed business is often a Herculean task. Resolution applicants must develop and execute a comprehensive turnaround strategy to restore the company to profitability.
5. Disputes and Litigation: Legal disputes related to the distressed business can complicate the resolution process. Resolution applicants may find themselves entangled in court battles that delay the revival of the business.
Resolution applicants are instrumental in the success of the Insolvency and Bankruptcy Code in India. They are the driving force behind the revival of distressed businesses, which, in turn, benefits creditors, stakeholders, and the economy. However, the role of resolution applicants comes with its share of challenges, including competition, funding constraints, legal complexities, operational turnaround, and potential disputes. Despite these hurdles, their contributions to the IBC's objectives of timely resolution and maximizing asset value make them indispensable in the insolvency and bankruptcy ecosystem in India.
Ancoraa Resolution Pvt. Ltd., is a company promoted and managed by experienced Insolvency professionals with a rich experience in corporate banking, debt resolution, and restructuring.
At Ancoraa Resolution, we are a team of IPs, CAs, CS, Cost Accountants, and Lawyers with deep knowledge and practical experience in the insolvency space. The professionals on our team have extensive experience in leading, managing, and successfully running insolvency processes across industries.
Ancoraa’s flagship technology, the Rezolution Engine® – is India’s first and only ‘Resolution-as-a-Service’ platform providing a collaborative digital avenue to run the entire resolution process in compliance with the Insolvency and Bankruptcy Code of India. Whether you are a supplier, a homebuyer, a bank, or a personal guarantor, Rezolution Engine® enables anyone to initiate an insolvency application and allows all the participants to get a single point of view to the insolvency and bankruptcy proceedings, while maintaining compliance and governance throughout the process.
Shruti is the operations specialist at Ancoraa. She is responsible for IP engagement, company research and operational excellence initiatives. She is passionate about and writes on topics of Insolvency Technology and administers Ancoraa’s flagship technology platform ‘Rezolution Engine’.
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