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Sunday, November 28, 2021

RBI panel for ARC participation in IBC cases, investment threshold

The committee has recommended that ARCs be allowed to participate in IBC process either through an SR trust or through an AIF sponsored by them.

By: ENS Economic Bureau | Mumbai |
November 3, 2021 3:12:34 am
For transactions on 100 per cent cash basis, minimum contribution by an ARC should be reduced to 2.5 per cent of total SRs issued in each class and scheme.

The RBI’s committee on asset reconstruction companies (ARCs) has recommended that ARCs should be allowed to participate in the Insolvency and Bankruptcy Code (IBC) process as a resolution applicant either through a security receipt (SR) trust or through an AIF (alternative investment fund) sponsored by them.

The panel of the Reserve Bank of India (RBI) has proposed that for all transactions, per SR class or scheme, minimum investment in SRs by an ARC should be 15 per cent of the lenders’ investment in SRs or 2.5 per cent of the total SRs issued, whichever is higher.

For transactions on 100 per cent cash basis, minimum contribution by an ARC should be reduced to 2.5 per cent of total SRs issued in each class and scheme.

Also, current regulation on the resolution period (maximum of 8 years) may not be required for acquisitions where lenders get exit, i.e., do not hold any SR in respect of the asset sold by them, according to the report by the Committee to Review the Working of Asset Reconstruction Companies.

“If 66 per cent of lenders (by value) decide to accept an offer by an ARC, the same may be binding on all lenders and must be implemented within 60 days of approval by majority lenders (66 per cent),” it said, adding that 100 per cent provisioning on the loan outstanding should be mandated for a dissenting lender who fails to comply with this requirement.

In cases where ARCs have acquired 66 per cent of debt of a borrower, the SARFAESI Act should provide for two years of moratorium on proceedings against the borrower by other authorities, the report said. The Act should also provide that government dues including revenues, taxes, cesses and rates due to the Central government, state government or local authority will be deferred in such cases, it added.

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