This webinar brief has been written by Prayrana Singh, from NAVRACHANA UNIVERSITY and has been edited by Oishika Banerji.

Introduction

GUEST SPEAKER: CA JUGRAJ BEDI

DESIGNATION: MANAGING PARTNER JS BEDI & ASSOCIATES

HOST: ANUBHAV GARG 

ABOUT THE SPEAKER: CA Jugraj Bedi is a managing partner at JS Bedi & ASSOCIATES, certified insolvency resolution professional has 20+ years of experience in the arena of the corporate and financial transaction.

What is the nexus between IBC and M&A?

M&A means one company acquiring another company. The Companies Act provisions were there Section 230 to 236 talks about M&A. The difference between IBC and M&A in previous Companies Act is, in the previous arena the acquirer and the acquirer were both willing to get themselves either acquired but in IBC Code it was not like that. The corporate debtor who is under insolvency doesn’t want to get acquired but it is the situation as the company is not willing to pay the debts of the party who have taken debts to the IBC. That is the basic difference between the M&A and IBC. But in IBC also one company get acquired by another company and the Companies Act provisions do attract. 

What is a distressed M&A?

In IBC, for example, Bhushan steel case which was acquired by TATA steel which is now known as Bhushan TATA, so Bhushan was under distressed it was not able to pay the debt to the bankers so the bank took that company to NCLT and it got acquired by TATA steel at around 45,000 crores. M&A and IBC both are doing the same thing, M&A is willing to partner joining together and one person bidding for the distressed company where distress means when one company that is corporate debtors are not being able to pay its debts either operational debts or financial debts then the assets which are sold or distress assets and the acquiring company the other company which acquires filing through is known as distress M&A.

What is a legal procedure in distressed M&A and what are the steps companies follow when distress M&A takes place?

The first step that the company follows under IBC is to apply by the financial creditor where financial creditor means the person who had given some sort of debt to the company is called the financial creditor. If the debt which has been given by the company is not repaid to the financial creditor then it goes to the NCLT saying that the debt has not been repaid by the company so please take the company to the insolvency. On the admission of the application which is filed by the Adjudicating Authority (AA) the IRP is appointed (Insolvency Resolution Profession) and the monitories are declared by the NCLT.

So for next one month, the role of the IRP to safeguard the assets of the company and the company has a going consultant and also to prepare a list of the assets and liabilities of the company along with the creditor’s detail and debtor’s detail. In meanwhile between this there will After 30 days there will be a meeting of the public announcement calls further claims and form a committee of creditors once the committee of creditors is formed they decide upon next course of six months and within six months the resolution professional also publishes in the newspaper asking for the probable applicant who wants to acquire the company in that once somebody gives his preference or expression of interest then the detail of the company is given to the applicants and on the approval of NCLT the company is sold to that company.

What is the common due-diligence observed by the corporation in this process?

When the normal M&A takes place the due-diligence is done by the third party like valuers, advocates and they come to the company and do the due- diligence. In most of the cases, the due-diligence takes about 6 months to 2 years because the acquirer doesn’t want to give any loopholes in satisfying himself.

In IBC because of the timelines given in the act itself in 180 days the whole process of CIRP is finished. Within 30 to 54 days starting of the CIRP process, the resolution professions appoint two valuers. These two valuers actually do the valuation of all the assets of the corporate debtor, the physical assets or the share and securities or other loans and debtors they do the valuation and also the resolution profession prepares a list of the creditors and Payables. After two this month’s there is a document called the association of memorandum which has detail information prepared by the resolution profession for sharing with the probable resolution applicant. 

There is a document called information Memorandum there will be details of all the assets which has been valued by valuers who are registered in the board is Insolvency of bankruptcy in India, the value which is given by those valuers actually accepted by all the resolution applicants. So this takes 2 to 3 months to complete this. And thereafter the resolution applicant takes their own time informing the opinion.

How much does the process cost to the company?

It depends upon the value of the assets. If some have the value of 50,000 crores of assets the fees would be higher. For valuation, it will cost 5 lac rupees to 1 crore anything between this.

Overview OF IBBI (INSOLVENCY RESOLUTION PROCESS FOR CORPORATE PERSONS) REGULATIONS, 2016

The whole IBC is divided into 4 parts, earlier there was only resolution corporate insolvency it was not for an individual now there it is there for the individual. If an individual does that default then he can be taken to IBC. For the individual there is DRT and for the corporate person, it is NCLT. And the appellant is an appellate tribunal. In CIRP, if the default company is defaulting then the process is CIRP and adjudication authority is NCLT. 

Resolution profession has to put the resolution plan which has been put by the resolution applicant. It can be 2 3 plans of the distressed company of CIRP. All those resolution plans will be prepared and have an assembly of those resolution plans after an affidavit from the COC members they will not disclose the details of that resolution plan with anybody and in that meeting, this resolution is discussed and the resolution applicant is also allowed to make his presentation on the resolution plan. The sole purpose of IBC is to keep the company in going concerned where it means that the employee has to be there, the employment will not go away, the creditors will have some sort of money from that company.  

Content of resolution plan

The content of the resolution plan is given in the IBC itself. It says it should talk about the company details, the promoter details they have not been convicted of and how they plan to give the money to the creditor of the company and how they will give the concern. 

How is the valuation of assets done in distressed M&A? 

The financial creditors are always part of the COC members. Any resolution plan is to be approved by the 66% of the voting share and it can be challenged if somebody does not agree to the majority party. As far as the valuation of intangible assets like IP of corporate debtors is concerned it is then the valuers got themselves registered in that. There are 3 kinds of valuers registered: they are valuers for share and securities and intangible and there is for building plants and machinery. 

How common mistakes while assessing risk and liability in distress M&A?

Mistakes are very difficult to judge. The idea of having this IBC was to get an inside view of the company. Normally the inside view of a company is not available these days. There is an inside person in the company who has checked the assets and liabilities of the company and sharing the information to the creditors of the company. And that information is witted by the court officers so there is the essence of credibility in this process.

In most of the cases where M&A cases, IRP is the individual person who is actually in the inside of the company but he is an outsider working only for 2 3 months which would be able to check the assets of the company. Some of the hidden liabilities which IBC is not able to find out so one can only see what has been given to them if somebody hides some kind of contract which has been in that place then the lawyers who were doing their duty would be able to know the mistakes. 

Why is this M&A activity happening under IBC and not under previous M&A activity?

The due-diligence is done under M&A by the third party perspective only, those people who are doing the due diligence are not aware of the inside of the company. They are also not aware of how many employees are there. When it comes to sharing of the information it can always be coloured or hidden it can be manipulated but in case of CIRP the information which is shared by them is not coloured or it cannot be manipulated. It can be hidden in the sense that something comes out of the blue and it was not known to the IRP also, but to the large extent, the true information is available. So if somebody is trying to acquire some company, some sort of assets its always better go for the assets which have been sold under IBC because the information which will get from the resolution profession will be accurate and moreover if the information is not correct it can be challenged in the court also. 

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