Indian Ministry of Corporate Affairs proposes allowing partial sales of insolvent firms under new IBC revisions

The  Indian Ministry of Corporate Affairs proposes revisions to the IBC (Insolvency and Bankruptcy Code) which would allow partial sales of stressed companies under the law if a rescue plan for the entire company fails to materialize. Currently, the IBC only allows resolution plans for the entire firm, with liquidation as the only alternative.

The proposed changes aim to expedite resolution under the IBC and prevent erosion of asset value. According to a report in The Economic Times, the new proposals would not make partial sales the default option. Instead, priority will be given to securing a single resolution plan for the entire company in the first instance. Only if this fails would multiple plans for different assets be sought.

The proposed changes could benefit investors with limited financial strength who may not be able to bid for an entire insolvent firm but could potentially purchase individual parts of it. The revisions are expected to be included in the new amendments to the IBC and could help prevent liquidation, preserve jobs, and increase value realization.

The current rules regarding resolution plans for the entire firm will remain in place, and an enabling clause will be needed to facilitate transactions under the IBC when a debtor is unable to obtain a resolution plan for the entire firm. The proposals aim to strike a balance between securing the best possible outcome for creditors and preserving the jobs of employees within a stressed company.

The Indian Ministry of Corporate Affairs has been taking steps to improve the efficiency of the IBC and has introduced several amendments to the code since its implementation in 2016. The proposed revisions to the IBC aim to provide greater flexibility in the resolution process, which could attract more investors to bid for stressed assets and increase the chances of a successful resolution.

In conclusion, the proposed revisions to the IBC would allow partial sales of insolvent companies under certain circumstances, while prioritizing the search for a single resolution plan for the entire firm. The proposed changes could increase value realization, prevent liquidation, and preserve jobs. The Indian government has been taking steps to improve the efficiency of the IBC and the proposed revisions are part of this ongoing effort.