In order to enable the asset reconstruction companies (ARCs) to bid for bankrupt companies, the Association of ARCs has requested the Reserve Bank of India to address “regulatory gaps” between the insolvency law and the SARFAESI Act, 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act).
This comes after the central bank rejected UV Asset Reconstruction Company’s (UVARCL) resolution proposal for bankrupt Aircel on the basis that asset reconstruction companies cannot infuse equity in an insolvent company during the resolution stage, ETTelecom reported.
Under the SARFAESI Act, 2002, banks and other financial institutions are allowed to directly auction residential as well as commercial property pledged with them in order to recover loans.
If a non-ARC had invested in equity and partnered with UV Asset Reconstruction Company to pick up the assets, then the banking regulator would not have rejected the plan, experts said.
Unhappy with the Reserve Bank’s decision, the Association of ARCs in India has written a letter to the apex institution to issue new guidelines for ARCs with provisions similar to those under the IBC (Insolvency and Bankruptcy Code).
In a letter to RBI Governor Shaktikanta Das, the association said the refusal to accept an ARC as a resolution applicant will stall insolvency processes where they are either bidders or have won bids. It stated ARCs arrange funds to help distressed assets and play a vital role in reviving them.
“We understand from some of our members that as per the extant guidelines and directions issued by RBI to ARCs, submission of resolution plans by ARCs as RA is not in conformity with the provisions of securitization act, 2002, and the directions/guidelines issued thereunder,” the ARC association said in its letter.
Asset Reconstruction Companies write a letter to RBI, ask to address “regulatory gaps” between SARFAESI Act and IBC
In order to enable the asset reconstruction companies (ARCs) to bid for bankrupt companies, the Association of ARCs has requested the Reserve Bank of India to address “regulatory gaps” between the insolvency law and the SARFAESI Act, 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act).
This comes after the central bank rejected UV Asset Reconstruction Company’s (UVARCL) resolution proposal for bankrupt Aircel on the basis that asset reconstruction companies cannot infuse equity in an insolvent company during the resolution stage, ETTelecom reported.
Under the SARFAESI Act, 2002, banks and other financial institutions are allowed to directly auction residential as well as commercial property pledged with them in order to recover loans.
If a non-ARC had invested in equity and partnered with UV Asset Reconstruction Company to pick up the assets, then the banking regulator would not have rejected the plan, experts said.
Unhappy with the Reserve Bank’s decision, the Association of ARCs in India has written a letter to the apex institution to issue new guidelines for ARCs with provisions similar to those under the IBC (Insolvency and Bankruptcy Code).
In a letter to RBI Governor Shaktikanta Das, the association said the refusal to accept an ARC as a resolution applicant will stall insolvency processes where they are either bidders or have won bids. It stated ARCs arrange funds to help distressed assets and play a vital role in reviving them.
“We understand from some of our members that as per the extant guidelines and directions issued by RBI to ARCs, submission of resolution plans by ARCs as RA is not in conformity with the provisions of securitization act, 2002, and the directions/guidelines issued thereunder,” the ARC association said in its letter.