Lock In Period On Sale Of Stressed Assets

Sale Stress

There is another interesting factor that has come out about Stressed Assets.  Those of the bidders who are going for assets of companies which are under the process of insolvency proceedings would now be subjected to a five year lock in period for sale of the shares acquired.  This would avoid the shares being sold at a profit, within months of its acquiring.

What are its intricacies?

  1. This would obviously pave way for some comfort level to the creditors who have agreed to take a haircut in the revival process of these loans.
  2. Lenders would have to now clear the assets before the shares could be sold by the companies who acquire them.
  3. Banks who would take up atl east 60 per cent haircut on their loans, additionally want to protect their interest, even after the takeover by a new owner.
  4. The lock in period would be different for different types of assets, which again depends on the type of asset, its longevity, nature of loan etc., which would be governed by the Lock-in-period clause contained in the Insolvency and Bankruptcy code.
  5. One section feels that the lock in period should be restricted to the clearance of the Loan and not 5 years as suggested.
  6. The head of the IBBI (Insolvency and Bankruptcy Board of India, feels that though the overdue is more that terms of repayment are attractive. Further, it is felt that though initially number of companies will go for liquidation, once the code gains momentum, the insolvency professionals will realize that resolution would be more beneficial than liquidation.  Thus he feels that liquidation is the converse of resolution.

Author: Admin Bankedge

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