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'Bankrupt companies selling in parts better than sale to single bidder'

'Bankrupt companies selling in parts better than sale to single bidder'
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A mix of investors buying different parts of a bankrupt company is better than a single investor picking up the company as a whole as different investors may find individual units more strategically fitting, Insolvency and Bankruptcy Board of India (IBBI) has said in an explanation to the rule changes issued earlier this month.

As per the changes that are now effective, administrators of bankrupt firms are required to re-invite bids for individual units of the company if there was no bidder for the whole company the first time.

IBBI explained in a presentation posted on its website that corporate debtors have functional and non-functional assets in different businesses and locations. Potential investors are interested in functional asset or an asset in one location or business alone. Acquiring the stressed business as a whole may not be in line with the capacity and strategic objective of the potential investor, IBBI explained. Besides, the Parliamentary Standing Committee on Finance too had highlighted the fact that bidders may be interested in select business units or assets rather than the entire business. “A combination of bidders taking different business units or assets may be far superior to one bidder acquiring the entire assets," the presentation pointed out.

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The amendments to the regulations issued earlier this month-- Insolvency Resolution Process for Corporate Persons (Fourth Amendment) Regulations—enabled the re-issue of the request for resolution plan for sale of part of the assets of the corporate debtor as well where no resolution plan has been received for the company as a whole, IBBI explained.

The bankruptcy resolution plan may contain measures for sale of part of the assets of the corporate debtor to one or more successful resolution applicants, IBBI said.

The amendments also provided for formulating a strategy for marketing of assets of the bankrupt business to a wider and targeted audience of potential bidders.

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The amendment enabled a longer time for the asset to be in the market as the invitation for expression of interest has been advanced to 60th day from insolvency commencement date. Changes have also been introduced to provide more relevant information to persons for expressing interest.

With the aim to reduce delays in the process and to enhance efficiency of available time, the amendment enabled creditors to examine whether they want to explore the option of ‘compromise or arrangement’—a restructure option under the Companies Act--and seek the same from the tribunal while applying for a liquidation order.

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