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IBBI mandates marketing of only large toxic assets

The insolvency regulator has stipulated that resolution professionals firm up marketing strategies to woo a wider pool of investors to buy stressed firms if the asset size involved exceeds `100 crore.

In other cases, marketing strategies can be prepared only if the committee of creditors so decides, according to the Insolvency and Bankruptcy Board of India (IBBI).

The idea is to link the marketing efforts with the value of assets, and not liabilities. This will “prevent misuse of this provision” in cases where asset value is small and way lower than the admitted claims of the creditors, and where the cost of marketing is prohibitive and not commensurate with the expected returns out of this strategy.

According to the regulator’s directive, professional services can be hired for marketing of such large assets and information of assets needs to be disseminated to a “wider and targeted audience”.

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Recently, the IBBI tweaked its regulation to allow part-sale of toxic assets in select cases. It permitted administrators and creditors to invite bids for individual assets of the stressed company if they don’t receive any resolution plan for the whole entity in the first instance. It also allowed the marketing of toxic assets to generate greater investor interest. The move was aimed at resolving stress faster, possibly leading to better recovery for lenders, analysts have said.

Recovery for financial creditors from the resolution of toxic assets has remained far below par in recent quarters. It stood at just 10.7% of their admitted claims in the June quarter, having barely improved from a record low of 10.2% between January and March.

The regulator had also allowed a longer time frame for the asset to be in the market, as the invitation for expression of interest has now been advanced to 60th day from insolvency commencement date.

Also read: Top i-banks under Sebi lens over possible disclosure lapses

In a bid to reduce delay, often blamed for the erosion of the value of stressed assets and consequent poor recovery, the IBBI has enabled creditors to examine whether they want to explore the option of ‘compromise or arrangement’— a restructure option under the Companies Act. In such cases, they can seek this option from the tribunal while applying for a liquidation order.

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