India’s insolvency regulator has amended the country’s Insolvency and Bankruptcy Code, with the aim of helping creditors get better value for distressed assets and improve recovery rates, according to industry experts.
The changes by the Insolvency and Bankruptcy Board of India (IBBI) will also allow creditors to sell part assets in order to raise more revenue. Furthermore, the regulator also announced a performance-based pay structure for resolution professionals (RPs). Both moves will have far-reaching consequences for insolvency specialists, the experts said.
“Allowing RPs an incentive based on recovery value aligns with the objectives of all stakeholders. Creditors were so far averse to working with a performance-based fee plan and that has led to a decline in the quality of the resolution and as result the recovery value. Incentives will make resolution professionals strive to optimize the value of the corporate debtor," said Nikhil Shah, managing director of Alvarez & Marsal (A&M) India.
In another initiative, IBBI has set a minimum fixed fee for RPs for the first time. Depending on the size of claims admitted, RPs can now earn between ₹1 lakh and ₹5 lakh (£1,100–£5,500) per month. There are added incentives for both timely resolution and value maximisation.
The RP is also entitled to 1% of the difference between the realised value and the liquidation value as an incentive for value maximisation. This change is effective from 1 October 2022.
Consultants said the amendments will encourage creditors to go for better quality professionals and also put the onus on RPs to speed up the process.
Abizer Diwanji, head financial services at EY, said: “Fees should not be a constraint to get the best value. It was seen that lenders were reluctant to go for performance-based incentives and in many cases had to settle for lower realisations because of poor quality of work. While this is a welcome move I would say that getting professional help should not be an issue and such costs should be borne separately in the resolution plan because it makes a difference both in terms of value as well as timelines.”
IBBI will also allow creditors to sell assets separately in cases where no resolution plan has been received for the debtor as a whole, thereby maximising value.
Drive to improve logistics
Prime Minister Narendra Modi has unveiled India’s new National Logistics Policy that seeks to address the challenges facing the transport sector and cut the logistics costs for businesses from 13%-14% to a 10% within five years.
Modi said the policy aims to help organisations save time and money by improving last-mile delivery.
While the new policy addresses challenges of the logistics sector it, together with the infrastructure plan PM GatiShakti, will address gaps, he said. PM GatiShakti is a digital platform that brings 16 ministries, including railways and roadways, together for integrated planning and coordinated implementation of infrastructure projects. It was launched in November 2021.
The Prime Minister said the use of drones will improve the logistics sector, one example of how the government is using technology to strengthen the logistics sector. Others include faceless assessment, which has started in customs, e-way bills and FASTag – the electronic toll collection system operated by the National Highway Authority of India. All are bringing efficiency to the logistics sector, he added.
He said the capacity of the nation’s ports has been increased and the container vessel turnaround time has been cut to 26 hours from 44 hours.
The Union government has been developing the National Logistics Policy for three years. It released a draft logistics policy for consultation in 2019, but it was delayed by the Covid-19 pandemic. The National Logistics Policy was once again announced by Finance Minister Nirmala Sitharaman in the Budget for 2022-23.