Issues with Mergers and acquisitions under Bankruptcy code: Expert View

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By promoting a transparent and time frame sale of assets and companies of delinquency of corporate debtors under Insolvency and Bankruptcy code 2016 stimulates a spur in merger and acquisition (M & A) trades. This further promotes the development of new policy changes.

The corporate insolvency entry process by National Law Tribunal (NCLT) prompts the onset of the sale of the assets under the Bankruptcy Code. Now, IRP (insolvency resolution professional) is appointed to take charge of the bridle of the corporate borrower and replacing the existing management. IRP is the creditor’s aspirant so putting the creditor in control resulted in falling interest in the sale process adversely this lead to an acute deviation in the Information flow regarding the corporate debtor and extension of assets and liabilities. This may further lead to difficulty in the price discovery process as well as discourage potential Investors in the various acquisition proposals. Still, there is an uncertainty that whether a sale under Bankruptcy code will influence the company’s Act requirement. Instantly, the acquisition process requires several corporate approvals. When NCLT starts the insolvency resolution process the corporate debtor will be prevented from the sale of assets and businesses until the termination of the moratorium period of 180 days or till the sale process approved by the NCLT. Such a compulsory time gap could result in the decaying of the value of the asset of the borrower. An alternative to avoid the “melting ice-cube “situation is to develop pre-pack arrangements that help in selling a part of the company’s business assets to the recognized purchaser at a negotiated price preceding to the commencement process by the NCLT. The “pre-pack” is common in International jurisdictions, but are restricted in the Bankruptcy Code. Regarding the stamp duty, there is no exception regarding the payment and other asset acquisition under the Bankruptcy Code.

Regarding the acquisition of assets by a purchaser under Bankruptcy code. Even it is approved by the NCLT do not result in the automatic transfer of government issues, licenses, customer, and third-party contracts. The problem still arises in the creditor decision-making process. Only 75% of the creditors may approve the plan under the sale of Bankruptcy code.

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