press trust of india
New Delhi, Jan 7: A number of insolvency-bound companies, reeling under huge unserved loans, are scouting for front entities to buy them out in a distress sale under an ‘asset reconstruction’ model with the help of ‘friendly’ IRPs, but have landed themselves under the regulatory scanner.
According to top regulatory officials, some of these firms are approaching senior NBFC executives with a good reputation in the market with a novel idea of setting up their own ‘asset reconstruction startups’ and then bidding for the assets being sold under the insolvency process.
They are also trying to rope in some ‘friendly’ IRPs (Insolvency Resolution Professionals) to help achieve their motive of a ‘front entity’ acquiring the assets on sale, but the regulators and the government agencies have got a whiff of the whole design including with the help of some whistleblowers, a senior official said. The companies which are currently under scanner include those from the steel, power and textiles sectors, the official said, but refused to divulge the names as the investigation is currently under way.
There are apprehensions that more such ‘frauds’ may happen once the individual insolvency regime is introduced as several HNIs may want follow similar routes to get away from paying debt and still retain some of their assets.
The government is, however, aware of such possible attempts and will keep strengthening the law to check any misuse, officials added. Around 500 corporates have been admitted for resolution and about 100 companies have commenced voluntary liquidation under the Insolvency and Bankruptcy Code (IBC), which is a little over a year old.
A tentative estimate of the total underlying default amount which formed the basis for initiation of resolution of about 500 corporate debtors is about Rs 1.3 lakh crore.
Distressed companies scouting for fronts
