Bankruptcy amendments to generate more momentum in market

The new amendment debarring willful defaulters and NPA accounts for more than one year from bidding under the bankruptcy process is expected to generate some momentum in the financial markets. The beneficiaries would be asset reconstruction companies, investment banking, NBFCs etc. Take a look.

Support ARCs recovery efforts
The asset reconstruction companies (ARCs) can invoke bankruptcy proceedings in many of the mid-sized companies where they have bought loans from banks in the last few years. Since these loans are NPAs for a longer period and hence promoters are barred for bidding unless they clear the outstanding dues, the ARCs can easily proceed for liquidation and recovery in such cases.

Scope for interim finance
The existing defaulting promoters will be forced to borrow money from NBFCs to participate in the bidding process in their companies if they have the outstanding dues to banks. Many promoters will now approach the NBFCs for interim financing to pay back the outstanding dues to come clean on NPA tag.

Stake sale or sale of business
There is a also a strong possibility of promoters resorting to stake sale to generate resources. The promoters generally don't want to part with their stake or reduce their stake. They often demand a higher price for selling a chunk of holding to private equity and other financial investors. This situation will now changed as there is every chance of losing the company in case of a default.

Selling part of the business or group business
There may be case where the defaulting company will sell a part of the business or business of some of the group companies to avoid a default or to come out of a default. This will give push to M&A activities.