INTERIM FINANCE - A NEED OF CORPORATE DEBTOR! A REVOLUTIONARY INVESTMENT OPPURTUNITY!

The objective of enacting Insolvency and Bankruptcy Code, 2016 is eminent to all. However, the undefining haircut offered to the creditors in Jet Airways and Videocon has opened a pandora’s box of criticism which has eventually questioned the foundation of the code. Distressed companies undergoing CIRP have become an easy bait for the financially viable companies by which they get the assets of stressed companies at a price way below the market price.

A year ago, Union Minister of State for Corporate Affairs Shri Rao Inderjit Singh in a written reply to a question in Rajya Sabha stated that 4,540 companies are undergoing CIRP out of which only 394 companies stand resolved with 36% realisation of claims by financial creditors under IBC.

A common factor in all the CIRP is that the resolution professional has to run the CIRP with limited funds or mostly with no funds, though Section 14 of the Code provides some relief to the sick company by granting moratorium but the RP still has to figure out the ways to meet the ongoing expenses of CIRP even if the corporate debtor is not a going concern.

The Code encompasses 255 sections and 12 schedules, out of such plethora’s of sections, interim finance carves its way out under Section 5(15) of the code. “Interim Finance” can be explained as a financial debt raised by the resolution professional during the insolvency resolution process. Such finance is raised by the resolution professional to meet the day-to-day expenses of the corporate debtor.

With the advent of Interim Finance came in the Interim Finance Providers and a revolutionary investment opportunity for public at large. Interim Finance Providers bridges the gap between the investors (who are looking for safe and high returns) and stressed-asset companies (which are undergoing CIRP) who are in need of such finance to run its daily business.

The nascent code is developing itself and in this long marathon the concept of interim finance with the help of interim service providers has already taken a good pace. Interim Finance has proved to be a new spine of the stressed companies, helping the RP’s to meet daily expenses of CIRP and on the other hand it has become a revolutionary investment opportunity for public at large by enabling them to invest in an alternative investment product which generates lucrative IRRs and minimized risk, even for the smallest fraction of investment which are as little as Rs. 10,000/-.

Such Interim Finance Providers raise money from the public at large providing IRR’s as good as 18% along with an assurance of less volatility as compared to stock market. The interim finance providers after conducting a deep background study of each case fund only those companies which obtain a green tick on all the checks made by the interim finance providers.

The present uncertain times of pandemic has already created more hurdles for companies undergoing CIRP in many ways. Wages and Salaries of workmen and employees are unpaid in most of the cases and to top it all the Committee of Creditors of the corporate debtor are mostly hesitant to raise additional funds for the corporate debtor. The officials of nationalised banks have already stated that raising interim finance increases the debt burden on sick companies and the possibility of increase in haircut in their due amount. The Insolvency and Bankruptcy Code, 2016 is designed as such that the Interim Finance forms part of the CIRP cost and is ranked at the top in the waterfall mechanism as laid down in Section 53 of the Insolvency and Bankruptcy and Code, 2016.

Out of all the questions raised Interim Finance undoubtedly proves out to be a new breath to sick companies and to its beneficiaries, like employees and workmen. The whole purpose of enacting Insolvency and Bankruptcy Code, 2016 was to bring back life to the sick or dead companies and avoid them from running into liquidation and ultimate dissolution. The process of corporate insolvency resolution cannot run in isolation, every case be it in CIRP or Liquidation needs financial viability to run its daily operational expenses which range from payment of security guards guarding asset of the corporate debtor, electricity charges etc. interim finance provides a ray of hope to such companies undergoing CIRP. Many of the manufacturing companies which are undergoing CIRP have working plant and machineries, the interim resolution professional or the resolution professional (as the case may be) appointed for such corporate debtor are in much need of interim finances so as to run the plant on daily basis. In the long run interim finance turns out to be a must need of the corporate debtor and a good investment opportunity for many who are looking for high and safer returns.