Insolvency and Bankruptcy code Dhiraj Dave January 2018

Why Insolvency Code • Improve ‘Ease of Doing Business’ ranking for India • High Stress level in Banking System • Release Capital quickly from system for productive re-usage • The average life of cases recommended for restructuring in 2002 was 7 years and the average life of cases recommended for winding up to the court was 6. 5 years • Consolidating various regulation under one umbrella • Increasing share on bond in debt market in India • Increasing confidence of international investor in Indian market • Difficult regulation related to enforcement of security by Foreign lender which increase cost of borrowing for Indian borrower

Ease of doing business : India’s ranking Recovery rate 2018 Ranking 25 15 nd la Fin po re A US Sin ga 9 10 6 4 3. 5 d la n Fin ga p or e A US Sin UK a Af ric ut h Ru ss ia 0 So 3 UK 12 9 il d la n Fin or e A ga p UK a Af ric US Sin So ut h Ru az Br in Ch ss ia 5 il 0 a 10 di a 1 In 18 az 0. 9 0. 8 a 1 in 1 Ch 2 di a 1. 7 2 2 22 20 Br 4 3 ric h So 2018 Rec Cost In 4. 3 4 Af Ru s 2018 Time year 5 a sia zil di In la na a 13 ut Sin ut So 13 2 e 2 nd 8 6 or UK a Af ric sia 7 h Ru s Br az il in a Ch In di 7 A 82 35 ga p 40 78 US 125 100 Rank 2017 Fin Rank 2018 74 78 Br a 123 Ch i 130 a 140 120 100 80 60 40 20 0 100 90 80 70 60 50 40 30 20 10 0

What has changed? • • Insolvency test moved from ‘erosion of net worth’ to ‘payment default’ Single insolvency and bankruptcy framework. Replaces SICA Time bound resolution process Advantage Creditor - Shift of control from shareholders and promoters to creditors - Provide confidence to lenders of their rights and their enforcement. - Better symmetry of information flow between creditors and debtors - Government dues would rank below to those of secured creditors and unsecured financial creditors • Insolvency Professional (IP) to take over the management and operations of the borrower during the CIRP • Focus to get back fraudulent diversion of assets, personal contribution can be sought; imprisonment possible 4

Insolvency and Bankruptcy Code Infrastructure Insolvency and Bankruptcy Board Information Utility NCLT Insolvency Agency Insolvency Professional Committee of Creditor Insolvent Entity 5

Corporate Insolvency Resolution Process Default Appointment of a resolution professional Moratorium period (180/270 days) Formation of committee of Creditors 75% of the creditor to approve Yes Returned to Management Yes RP Implementation Success No Goes into Liquidation No

Corporate Resolution Timeline IRP to constitute Co. C and submit report Submission of plan Application for NCLT approval First Co. C meeting, IP Appointed Admission of Application, Moratorium Declared, NCLT Creditor to Appoint Interim RP submit claims No of Days -ve 14 Filing of application to NCLT 7 0 3 7 14 21 Appoint 2 Valuers Public announcement IRP Verify claim 23 30 44 150 170 Preparation of IM Co. C’s approval of resolution plan 180 Acceptance/ Rejection of Resolution plan by AA, Liquidation in process begin

Corporate Liquidation : Priority of claims 8 Insolvency resolution process and liquidation cost Insolvency cost include funding cost for running the debtor as going concern Secured creditor and workman dues (upto 24 months) Secured creditor can opt for SARFAESI Action, No clarity on right of different class of creditor Other Employee dues (upto 12 months) Non Workman/ Contract labour Financial debt of unsecured Creditors ECB/ Fixed deposit Government dues (upto 2 years) and unpaid secured creditor SARFAESI lender residual claim Any other remaining debt Other dues of debtors Preference shareholder Having Priority over Equity shareholder Least priority class

IBC: Equity investment perspective Approval Date Company Lead Debt CDR SDR ABG Shipyard ICICI 9, 290 Yes 137 Alok Industries SBI 22, 075 No Yes 563 n. a. Amtek Auto Corporation 14, 075 No No 745 n. a. Bhushan Power and Steel PNB 37, 248 No No N. A. n. a. Bhushan Steel PNB 44, 478 No No 1, 572 n. a. Elestrosteel Steels SBI 10, 274 Yes 1, 409 6, 800 26 -09 -2013 Era Infra SBI 10, 065 Yes No 50 5, 000 18 -01 -2014 Essar Steel SBI 37, 284 No No N. A. n. a. Jaypee Infratech IDBI 9, 635 No No 3, 271 n. a. Jyoti Structure SBI 5, 165 No Yes 153 n. a. Lanco Infratech IDBI 44, 365 Yes No 467 Monnet Ispat SBI 12, 115 Yes 701 Total 2, 53, 732 No Debt, Market capitalisation and CDR Debt are in Rs crores. 9 Market cap. CDR Debt 9, 068 9, 500 28 -03 -2014 7, 700 11 -12 -2013 n. a.

IBC: Recovery record Synergies Dooray Resolution Plan Dues to Financial Creditor Amount to claimed be paid (Rs Cr) 972. 15 54. 69 Operational Creditor 00. 23 00. 01 Government and Statutory dues 03. 89 976. 27 58. 59 Total Source: IBBI Newsletter Jul-Sep 2017 10 Recovery Remark 5. 63% Payments to be made in staggered manner over time, 4. 35% Additionally, shareholders of the corporate debtor got 0. 48% shares of Synergy Castings 100. 00% Limited. Liquidation value estimate Rs 8. 17 Cr 6. 00%