Assignment of NRRAs under Regulation 37A

On 13^th November 2020, Insolvency and Bankruptcy Board of India (“IBBI”) issued the Insolvency and Bankruptcy Board of India (Liquidation Process) (Fourth Amendment) Regulations, 2020. One of the major purposes, for which this amendment was brought in was to ease the process of sale of liquidation assets. As we all are aware that realization of some assets (such as continent claims, disputed receivables, disputed assets, refund from government etc.) have been an uphill task for any liquidator. Since realization of these assets may take quite some time, they are referred in these regulations as ‘Not Readily Realizable Asset’ or NRRA, which term has been introduced by inserting Regulation 37A.

There is always a sense of urgency in a liquidation process and liquidator tries to ensure that the creditors of corporate debtors are able to realize maximum value of the assets of corporate debtor. However, these NRRAs create a sort of hurdle in this urgent process.

Regulation 37A permits the liquidator to assign or transfer a NRRAs through a transparent process, in consultation with the stakeholders’ consultation committee in accordance with regulation 31A, for a consideration to any person, who is eligible to submit a resolution plan for insolvency resolution of the corporate debtor which is governed by Section 29A of the Code.

The IBBI in its press release no. IBBI/PR/2020/16 dated 13.11.2021 clearly stated that “The Code envisages early closure of liquidation process so that the assets of the CD are released for alternate uses expeditiously. However, the process takes longer where the liquidation estate includes a ‘not readily realizable asset’.”

It also goes on to mention that a liquidator shall attempt to sell the assets at the first instance, failing which he may assign or transfer an asset to any person, in consultation with the stakeholders’ consultation committee, and failing which he may distribute the undisposed off assets amongst stakeholders, with the approval of the Adjudicating Authority.

To undertake the assignment of NRRAs, there exists two options i.e., absolute assignment and assignment with recompense facility. As is apparent from its name, in an absolute assignment, assignment of NRRAs will be absolute and the assignee would have right over the assets and any action related thereto. The assignment would also include the transfer of all the legal rights, remedies and power to bring the action to an end (such as settlement) without the interference of the assignor (liquidator). On the other hand, assignment with recompense facility will allow the liquidator to assign the asset with an initial price. Any subsequent net discovery (i.e., value realized less costs incurred in the recovery process) of the value over and above the initial price would be shared between assignee and the assignor, as per terms of the assignment.

Litigation Funding and NRRA-Quick Closure of Liquidation Process

LegalPay, India’s first and only litigation financing and interim financier, who can act as an assignee of an NRRA and can also fund the any disputed litigations (as part of an NRRA) for any assignee. LegalPay endeavours to have these NRRAs assigned in its favour on very competent and viable commercials, which will undoubtedly help the liquidator close the liquidation process in a timely manner. In addition to this, LegalPay also aims to fund the commercial litigations, which have been assigned in favour of an assignee as NRRA and any such assignee can easily approach LegalPay to seek funding for such litigations.

LegalPay provides a non-recourse funding in commercial legal claims in exchange for a share in the final recovery, implying that the litigant only has to pay only upon a successful realization of the claim. LegalPay is a VC-backed start-up with support from prominent names such as 9Unicorns, Lets Venture, Venture Catalysts and Amity Innovation Incubator.

LegalPay has also emerged as a significant player in providing legal interim financing to companies that have entered into insolvency under the Insolvency and Bankruptcy Code, 2016. This finance is provided at market competitive interest rates with structures suiting the requirements of the company.