{"id":29643,"date":"2021-05-03T12:28:10","date_gmt":"2021-05-03T06:58:10","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=29643"},"modified":"2021-05-03T12:28:11","modified_gmt":"2021-05-03T06:58:11","slug":"insolvency-resolution-for-nbfcs","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/insolvency-resolution-for-nbfcs\/","title":{"rendered":"Insolvency Resolution for NBFCs: All you Need to know"},"content":{"rendered":"\n<p class=\"has-drop-cap\">A few years back, the Banking and Finance sector came across a pleasant surprise when the Government declared the Financial Resolution &amp; Deposit Insurance bill&#8217;s withdrawal. This declaration continues to disrupt sectors owing to the persistent loophole in the framework governing the stress in FSPs, i.e., financial services providers. Till the arrival of Insolvency and Bankruptcy (Insolvency &amp; Liquidation Proceedings of FSPs &amp; application to Adjudicating Authority) Rules, 2019, the Insolvency &amp; Bankruptcy Code, 2016 (&#8220;IBC&#8221;) did not cover financial Service Providers. Currently, the FSP rules only cover non-banking finance companies, i.e., <a href=\"https:\/\/corpbiz.io\/nbfc-registration\"><strong>NBFC<\/strong><\/a>, whose asset size is over INR 500 crores. The infamous IL&amp;FS default &amp; evolving stress in the banking sector necessitating the prompt inculcation of a holistic regulatory framework for all financial Service Providers.  In this write-up, we will talk about Insolvency Resolution for NBFCs: All you Need to know.\u00a0 <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/insolvency-resolution-for-nbfcs\/#Overview_Coverage_of_the_FSPs_Rules\" >Overview\n&amp; Coverage of the FSPs Rules&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/insolvency-resolution-for-nbfcs\/#What_are_the_Implications_of_FSP_Rules\" >What\nare the Implications of FSP Rules?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/insolvency-resolution-for-nbfcs\/#Benefit_for_FSPs_Regarding_the_Accessibility_to_Insolvency_Resolution_Process\" >Benefit for\nFSPs Regarding the Accessibility to Insolvency Resolution Process<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/insolvency-resolution-for-nbfcs\/#Key_Takeaways_Related_to_FSP_Rules_18_November_Notification\" >Key\nTakeaways Related to FSP Rules &amp; 18 November Notification<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/insolvency-resolution-for-nbfcs\/#Experts_Opinion_on_the_Amendments_to_IBC_Act\" >Expert&#8217;s\nOpinion on the Amendments to IBC Act<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/insolvency-resolution-for-nbfcs\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Overview_Coverage_of_the_FSPs_Rules\"><\/span>Overview\n&amp; Coverage of the FSPs Rules&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As per FSP Rules, the IBC&#8217;s\nprovision related to insolvency resolution process of the corporate&nbsp;<strong><em>mutatis\nmutandis<\/em><\/strong>&nbsp;apply to the FSP&#8217;s insolvency resolution process subject\nto some vital rectification, which are:&nbsp;&nbsp;<\/p>\n\n\n\n<ul><li>The FSP&#8217;s CIRP (Corporate Insolvency Resolution Process) shall come into effect only by an apt regulator such as RBI.<\/li><li>On admission, an administrator equivalent to resolution professional under IBC is appointed;<\/li><li>An interim moratorium shall come to effect from the application&#8217;s filing date till its admission or denial by the NCLT;<\/li><li>The moratorium&#8217;s provisions shall not cover any third-party assets or properties&nbsp; in possession of the Financial Service Provider, including any securities, funds, &amp; other assets needed to be held in trust for the third parties&#8217; benefits; and<\/li><li>Upon resolution plan&#8217;s approval, the Administrator shall ask for NOC from the appropriate regulator to ascertain the &#8216;fit &amp; proper test.<\/li><\/ul>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/step-by-step-nbfc-registration-procedure\/\">NBFC Registration: Step by Step Procedure<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Implications_of_FSP_Rules\"><\/span>What\nare the Implications of FSP Rules?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Given that financial Service\nProviders have a significant part to play in India&#8217;s financial stability, the\nprotection of the rights of FSPs deposit holders, if any &amp; the protection\nof the linked economy that they cater is also paramount. It has been declared\nthat these rules are &#8220;an interim measure,&#8221; &amp; thus, while the\nother entities such as&nbsp;insurance providers, banks, stock exchanges,\nclearing corporations, etc., are a different concern altogether.&nbsp;<\/p>\n\n\n\n<p>Amidst the ongoing situation,\nit might be a suitable time to review the Resolution Corporation&#8217;s principal\n&amp; identify a feasible solution to the inevitable stress &amp; not let\nissues dictate the solution in upcoming days. Each financial services provider\nin isolation may not inevitably be &#8220;too big to fail,&#8221; but they\ncertainly have the build to seek holistic unified regulation.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Benefit_for_FSPs_Regarding_the_Accessibility_to_Insolvency_Resolution_Process\"><\/span>Benefit for\nFSPs Regarding the Accessibility to Insolvency Resolution Process <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Avail rights as that of other corporations that come under IBC <\/li><li>&nbsp;Prompt Settlements of evolving\nfiscal issues<\/li><li>No confrontation with initial legal requisites such as plea submission\nbefore NCLT<\/li><li>&nbsp;Access to interim moratorium from\nthe date of application filing<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Key_Takeaways_Related_to_FSP_Rules_18_November_Notification\"><\/span>Key\nTakeaways Related to FSP Rules &amp; 18 November Notification<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The following points will let you understand FSP rules&#8217; scope subjected to the different conditions such as liquidation process and status of third-party assets.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"1000\" height=\"455\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/Key-Takeaways-Related-to-FSP-Rules-18-November-Notification.png\" alt=\"Key Takeaways Related to FSP Rules &amp; 18 November Notification\" class=\"wp-image-29677\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/Key-Takeaways-Related-to-FSP-Rules-18-November-Notification.png 1000w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/Key-Takeaways-Related-to-FSP-Rules-18-November-Notification-300x137.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/Key-Takeaways-Related-to-FSP-Rules-18-November-Notification-768x349.png 768w\" sizes=\"(max-width: 1000px) 100vw, 1000px\" \/><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\">Liquidation\nProcess<\/h3>\n\n\n\n<p>In the liquidation process, the\nlicense of the registered FSPs shall not be canceled or suspended without\nrendering a chance of being heard to the liquidator. The Adjudicating Authority\nshall enable the appropriate regulator to share the concern before issuing the\nliquidation order. It\u2019s worth noting that the FSP rule lacks any guidance on\nthe license suspension if the Administrator strives to liquidate the FSP.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Voluntary\nLiquidation Process<\/h3>\n\n\n\n<p>The FSP must avail prior\nconsent of the appropriate regulator to initiate voluntary liquidation\nproceedings u\/s 59 of the Code. Moreover, the adjudicating authority is\nmandated to provide an opportunity to the relevant regulator of being heard\nbefore issuance of dissolution order for FSP.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Status\nof Third-Party Assets<\/h3>\n\n\n\n<p>Following the initiation of the corporate insolvency resolution process, the Administrator shall take control &amp; custody of third-party assets or properties, in trust, for the benefit of the same and shall deal with them as per the direction of the <em><strong>Central Government<\/strong><\/em><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Central_government\"><em><strong>[1]<\/strong><\/em><\/a><\/sup> under Section 227. The notification released on 18 November does not provide any mechanism for the handling of such assets and merely implies that this would be promulgated subsequently<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Experts_Opinion_on_the_Amendments_to_IBC_Act\"><\/span>Expert&#8217;s\nOpinion on the Amendments to IBC Act<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>According to the rating agency\nMoody, the amendment to IBC enabling the resolution of FSPs is credit positive\nfor banks. India&#8217;s banks are a prominent lender to NBFIs operating across this\ncountry. The provisions in the IBC aim systematic resolution of the stressed\ncompanies. <\/p>\n\n\n\n<p>Until now, liquidation is the\nonly viable source of resolution for the NBFIs. The agency is assured that such\nmeasures will help minimize losses for creditors as a comparison to the\nliquidation.<\/p>\n\n\n\n<ul><li>The corporate insolvency resolution process i.e., CIRP for\nFSPs, would be initiated &#8220;only on an application by the appropriate\nregulator&#8221;.<\/li><li>One of the substantial reasons given for keeping out FSPs from the ambit of the Insolvency and Bankruptcy Code, 2016 (IBC) was the opinion that such entities deal with public money and insolvency provided to them could trigger economic instability.<\/li><li>The distressed economy, the liquidity crunch incurred by the FSPs such as DHFL, &amp; compromised restructuring mechanisms for certain FSPs have led the inculcation of mechanism for restructuring FSPs under Insolvency and Bankruptcy Code, 2016 (IBC)<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The financial sector has been encountering a liquidity crisis for a long time. The exclusion of NBFCs from the insolvency resolution process under the Code has remained a severe concern for years. While some well-known players failed to cope with financial stress, several investors &amp; creditors of stressed NBFCs strived to resolve the issue by using options such as Reserve Bank&#8217;s 7 June 2019 Circular. However, the absence of holistic mechanisms such as Code &amp; multiplicity of legal proceedings disrupted the resolution of fiscal stress. Therefore, an extension of resolutions under the Code to the FSPs was widely expected. The issuance of the FSP rules and association with 18 November Notification has made a unified resolution process available to financial entities and their creditors with some procedural differences. Undoubtedly, the extended ambit of the Code has closed a gap in the corporate Insolvency resolution regime.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/types-of-nbfcs-in-india\/\">Types of NBFCs in India \u2013 An Overview<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A few years back, the Banking and Finance sector came across a pleasant surprise when the Government declared the Financial Resolution &amp; Deposit Insurance bill&#8217;s withdrawal. This declaration continues to disrupt sectors owing to the persistent loophole in the framework governing the stress in FSPs, i.e., financial services providers. Till the arrival of Insolvency and [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":29673,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[91],"tags":[1708],"acf":{"service_id":"308"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":5562,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/29643"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=29643"}],"version-history":[{"count":12,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/29643\/revisions"}],"predecessor-version":[{"id":29680,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/29643\/revisions\/29680"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/29673"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=29643"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=29643"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=29643"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}