Page 42 - BANKING FINANCE JUNE 2016

ARTICLE

of enterprise to enable a change in management
control, if lenders favour it.

 Under a restructuring package the Committee can
cause sale of an undertaking, which being a non-core
asset has caused a stress in the business.

 For restructuring of dues in respect of listed companies,
lenders may be, ab-initio, compensated for their loss
or sacrifice by way of issuance of equities of the com-
pany upfront. Where the same is not fully compensated
by way of issuance of equities, the right of recompense
clause may be incorporated to the extent of shortfall.

Recovery

 The Committee may also consider restructuring of the  Where the Committee is of the view that neither rec-
debt, where the account is doubtful with one or two
tification nor restructuring would work, due recovery

lender/s but it is Standard or Sub-Standard in the books process may be resorted to.

of majority of other lenders.  The manner of recovery may be decided by the Com-

 Restructuring is available as an option only where the mittee considering the various recovery options avail-

borrower is not a wilful defaulter. able.

 The terms of the credit arrangements undergo  Some of the legal recovery options available with the
changes in restructuring.
banks -

 In case of consortium lending, an Inter Creditor Agree-  Enforcement of security interest under SARFAESI

ment has to be signed among the creditors and Debtor. Act, 2002

Creditor Agreement has to be signed between the bor-  Legal proceedings under RDDBFI Act, 2002
rower and the lenders.
 Enforcement of security interest under common
 The viability of a case for restructuring is evaluated law
based on the following parameters - Debt Equity Ra-
tio, Debt Service Coverage Ratio, Liquidity or Current  Filing money suit against the borrower
Ratio, etc.
 Proceedings under section 138 of the Negotiable
 Stand-still may be included in the Debtor-Creditor Instruments Act, 1881

Agreement to enable a smooth process of restructur- Conclusion

ing. As already discussed earlier in this write-up, the Framework

 In order to review the adherence to various milestones, is similar to the framework issued by the RBI for early rec-

a period of 6 months should be considered. ognition of stress in larger borrowers. However, notifica-

 The Committee may consider the following options, tion of this account might turn out to be a dicey call on the

while restructuring a loan of a corporate borrower: part of the regulators. The earlier framework required

 Possibility of transferring equity of the company by tracking of larger accounts which were lesser in number but

promoters to the lenders to compensate for their here we are talking about MSMEs i.e. small borrowers

sacrifices; therefore the number of accounts under review will also

be comparatively much more.
 Promoters infusing more equity into their compa-

nies; Apart from the probable difficulties with respect to moni-

 Transfer of the promoters' holdings to a security toring of accounts, the Framework otherwise deserves a

trustee or an escrow arrangement till turnaround thumbs up. 

42 | 2016 | JUNE | BANKING FINANCE

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