Oct 01, 2017

IBC Update: India’s First Interim Finance

AZB & Partners represented Edelweiss in the country’s first significant interim finance under the Insolvency and Bankruptcy Code, 2016 (‘IBC’). The interim finance was raised by the resolution professional of Alok Industries Limited, Mr. Ajay Joshi (assisted by Grant Thornton).

Alok Industries Limited is one of the 12 accounts where the Reserve Bank of India directed banks to initiate insolvency proceedings under the IBC. The National Company Law Tribunal initiated a corporate insolvency resolution process against Alok Industries Limited on July 18, 2017.

The IBC provides specific provisions for raising interim finance by the resolution professional for the purposes of protecting and preserving the value of the property of the company and managing its operations as a going concern – and consequently achieve a viable resolution plan for the company.
The IBC classifies all interim finance raised as ‘insolvency resolution process costs’ (‘IRPC’). Payment of IRPC gets highest priority in a resolution plan or in liquidation.

The IBC requires that, in a resolution plan, IRPC must be paid out prior to any recoveries being made by any creditor. Such payment includes interim finance (interest and principal) which also gets this priority. Similarly, in liquidation also, the distribution waterfall set out in the IBC provides for highest priority to IRPC (which must be paid out of the liquidation estate).

Interim finance is an important ingredient to resolve and restructure a stressed and potentially insolvent company and in some cases can be critical for the company’s business operations to survive during the corporate insolvency resolution process. A number of companies undergoing the IBC process have sought to raise formal interim finance. There has also been sufficient interest in this space from various financial institutions. We expect that with this first deal underway, many others will be encouraged to follow suit.




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