Bankruptcy: Employees can seek attachment of promoters’ assets
The Insolvency and Bankruptcy Code approved by Parliament earlier this month empowers employees, creditors and shareholders to initiate resolution process at the first sign of financial stress like a default on repayment of a bank loan, Economic Affairs Secretary Shaktikanta Das said.
If the issue persists even after the extended nine-month resolution period, they can seek attachment of all immovable assets, including overseas ones, that the promoter had given as personal guarantee for taking loan, Das said.
"I would not like to comment on any specific company or case," he said, when asked if the provision can be invoked against businessman Vijay Mallya, who is now living in the UK after defaulting on payment of over Rs 9,000 crore of dues to public sector banks.
The new law, Das said, will change the financial sector architecture in India as it will create "a new and vibrant ecosystem where resolution of companies which are in financial distress will be possible quickly and in a time bound manner".
"Now the power to initiate the process of resolution, or failing resolution liquidation is right of every stakeholder. Stakeholders would include creditors, financial creditors, operational creditors, also includes workmen and employees," he said. Citing example, he said if the workers and employees were not getting salaries for months together, it obviously is a sign of financial distress of the company. And so the employees can file an application for initiating the resolution proceeding.
"If resolution proceedings are not feasible then you go for liquidation," he said. "So therefore, at the earliest sign of financial distress you can initiate the process and the NCLT will take a decision within 14 days on whether the case has to be admitted and taken up under the resolution process."
Once it is put in the resolution process, a Committee of Creditors (CoC) will be formed which within 180 days state if resolution is possible or not. If resolution was not possible, liquidation process would be initiated, he said. "Any personal guarantee given by the promoter can be sold to pay back employees or creditors. The property can be within India or outside," he said.
"If something is no more viable, then it has to be wound up. And then whatever value is there, that value of the company or assets can be recovered, can be retrieved before it deteriorates or depreciates further," he said adding currently BIFR takes 10 years to decide, a period long enough to reduce equipment and machinery to junk.
This, he said, was happening as under the existing law the debtor continues to be in control of assets. "Whereas in the new law the creditors will be in control and possession of the assets," he said.
Das said CoC is to within 30 days appoint a resolution professional, who will be responsible for running the day to day affairs of the company. "First they have to appoint an Interim Resolution Professional, then they will appoint a regular Resolution Professional who will be in-charge of the day to day functions of the company. The Promoter is out."