Interim financing – A corporate debtor needs! A revolutionary investment opportunity

The goal of enacting the Insolvency and Bankruptcy Code, 2016 is eminent for all. However, the indefinite haircut offered to creditors in Jet Airways and Videocon opened a Pandora’s box of criticism that ultimately called the code’s basis into question. Distressed companies undergoing CIRP have become easy bait for financially viable companies through which they obtain the assets of the distressed companies at a price well below the market price.

A year ago, the Union Minister of State for Corporate Affairs, Shri Rao Inderjit Singh, in a written response to a question to Rajya Sabha, said that 4,540 companies are undergoing CIRPs, of which only 394 companies are resolved with 36% realization of claims by financial creditors under BAC.

A common factor in all CIRPs is that the resolution professional must operate the CIRP with limited or mostly no funds, although Section 14 of the Code offers some relief to the ailing business by granting a moratorium, but the PR must still understand the means to meet the current expenses of the CIRP even if the debtor company is not an active company.

The Code consists of 255 articles and 12 schedules, among such a plethora of articles, interim funding finds its way under Article 5(15) of the code. “Bridge financing” can be explained as financial debt incurred by the resolution professional during the insolvency resolution process. This financing is raised by the resolution professional to meet the current expenses of the debtor company.

With the advent of interim financing, interim financing providers have become a revolutionary investment opportunity for the general public. Interim finance providers bridge the gap between investors (who seek safe and high returns) and distressed asset companies (who experience CIRP) who need such finance to run their day-to-day operations.

The nascent code is growing and in this long marathon the concept of interim financing with the help of interim service providers has already picked up a good pace. Interim Finance has proven to be a new backbone of struggling companies, helping PRs to meet the daily expenses of CIRP and on the other hand, it has become a revolutionary investment opportunity for the general public by allowing them to invest in an alternative investment product that generates lucrative IRRs and minimized risk even for the smallest fraction of investment which is as low as Rs. 10,000/-.

These interim financing providers raise funds from the general public, offering IRRs of up to 18%, as well as assurance of lower volatility compared to the stock market. The interim funders, after conducting a thorough study of each case, only fund companies that obtain a green tick on all the checks carried out by the interim funders.

The current period of pandemic uncertainty has already created more hurdles for businesses experiencing CIRP in many ways. Wages and salaries of workers and employees are not paid in most cases and, to top it off, the debtor company’s creditors’ committee is most often reluctant to raise additional funds for the debtor company. Officials of the nationalized banks have already said that raising interim funds increases the debt burden of ailing companies and the possibility of an increase in the haircut on their amount owed. The Insolvency and Bankruptcy Code 2016 is designed such that bridge financing forms part of the cost of the CIRP and is ranked at the top of the cascading mechanism as set out in Section 53 of the Bankruptcy Code. insolvency and bankruptcy of 2016.

Of all the questions raised, Interim Finance is undoubtedly proving to be a breath of fresh air for sick companies and for their dependents, such as employees and workers. The purpose of enacting the Insolvency and Bankruptcy Code 2016 was to revive ailing or deceased businesses and prevent them from ending up in liquidation and permanent dissolution. The corporate insolvency resolution process cannot operate in isolation, each case, whether in CIRP or liquidation, needs financial viability to manage its day-to-day operational expenses which range from paying agents security guarding the assets of the debtor company, electricity costs, etc. ray of hope for those companies undergoing CIRP. Many manufacturing companies that undergo CIRP have working plants and machinery, the interim resolution professional or resolution professional (as the case may be) appointed for that corporate debtor is in dire need of interim finance to make operate the plant on a daily basis. base. In the long term, bridge financing proves to be an unavoidable need for the debtor company and a good investment opportunity for those seeking high and more secure returns.



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The opinions expressed above are those of the author.



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