An analysis of the corporate insolvency resolution process as a route for acquisitions in India

• Date: 01 June 2020
• Published date: 01 June 2020
• DOI: http://doi.org/10.1002/iir.1380
• Author: Ankit Handa

RESEARCH ARTICLE

An analysis of the corporate insolvency

resolution process as a route for acquisitions in

India

Ankit Handa

Advocate, Bar Council of Delhi, New

Delhi, India

Correspondence

Ankit Handa, Advocate, Bar Council of

Delhi, New Delhi, India.

Email: ankit.handa05@gmail.com

Abstract

In India, the Corporate Insolvency Resolution Process

(“CIRP”) takes place under the Insolvency and Bank-

ruptcy Code, 2016 (“IBC”). It involves a Resolution

Professional inviting resolution plans for the corporate

debtor undergoing insolvency. These plans are submit-

ted by various Resolution Applicants and the best reso-

lution plan is approved by the Committee of Creditors

and sanctioned by the National Company Law Tribu-

nal. Thus, from an acquisition perspective, the poten-

tial acquirer of the stressed asset is required to provide

the best bid (in the form of the resolution plan) for the

stressed asset which would be able to garner the

approval of the Committee of Creditors. The CIRP

route has led to successful acquisitions across varie-

gated sectors from steel (Essar Steel) to textiles (Alok

Industries) and has become a new and effective tool to

undertake acquisitions for prospective acquirers pro-

viding a simpler and faster way for acquisition of

stressed assets. However, acquisitions through this pro-

cess are not yet free from their imperfections and there

are certain problems, which if addressed, could pave a

way for fruitful investments in the Indian economy.

This would bolster an investment and acquisition

friendly regime in India improving our nation's rank-

ing on the ease of doing business index even further.

Received: 3 December 2019 Revised: 2 March 2020 Accepted: 20 May 2020

DOI: 10.1002/iir.1380

© 2020 INSOL International and John Wiley & Sons Ltd

234 Int Insolv Rev. 2020;29:234–253.wileyonlinelibrary.com/journal/iir

This article seeks to analyse CIRP as an effective route

for acquisitions and identify such problems which are

relevant from an acquisition perspective, with the

objective and hope that a discussion on these issues

can help strengthen and stimulate successful acquisi-

tions and investments in the Indian economy.

1|INTRODUCTION

India has jumped 14 places to take the 63rd position on the World Bank's ease of doing business

rankings. Simeon Djankov, Director of Development Economics at the World Bank has cited

the successful implementation of the Insolvency and Bankruptcy Code, 2016 (“IBC”) as one of

the main reasons for improvement in India's ranking.

1

The IBC was brought into force to

address the non-performing assets crisis in the country and to provide for efficient resolution of

stressed assets. The Insolvency and Bankruptcy Board of India (“IBBI”) is the regulator for

insolvency resolution processes in India and accordingly frames rules and guidelines for the

same. It has formulated the IBBI (Insolvency Resolution for Corporate Persons) Regulations,

2016 (“CIRP Regulations”) to lay down the procedure for insolvency resolution of corporate

debtors that is, companies, Limited Liability Partnerships and other incorporated persons with

limited liability

2

who owe a debt to any person.

3

One of the primary methods of resolution of a corporate debtor is through acquisition of the

corporate debtor as a going concern and maximizing the value for creditors through this sale.

4

As a result, CIRP has become a route for investors looking to acquire stressed assets and is

being increasingly utilized to carry out acquisitions across diverse sectors. It is this aspect of

acquisitions through CIRP that forms the scope of this article. The author seeks to analyse how

acquisitions are carried out through the CIRP route and their advantages relative to acquisitions

of corporations carried out under the Indian Companies Act 2013 (Section 2). The article then

goes on to analyse the major problems plaguing acquisitions through this process namely, the

unclear status of certain assets (Section 3) and lacunae in the sale process (Section 4), which is

then followed by the conclusion and suggestions (Section 5).

2|ACQUISITIONS THROUGH THE CIRP ROUTE

The insolvency resolution process of a “corporate person”

5

is initiated either by itself

6

or by its

creditors (whether operational

7

or financial

8

), due to a default in payment of debt being com-

mitted by the corporate debtor. Post the admission of such an application, the adjudicating

authority that is, National Company Law Tribunal (“NCLT”) appoints an interim resolution

professional, who after due inquiries, constitutes a Committee of Creditors (“CoC”).

9

This CoC

appoints a Resolution Professional

10

(“RP”), who has the duty to invite prospective resolution

applicants, fulfilling certain eligibility criteria to submit a resolution plan.

11

The RP invites Expressions of Interest (“EoI”) from interested and eligible resolution appli-

cants specifying the eligibility criteria as well as disqualifications

12

and conducts due diligence

on the received EoIs.

13

Based on the EoIs, the RP then prepares a list of prospective Resolution

HANDA 235