Company Registration in Bangalore - Solubilis Corporate Services

2.  The Reserve Bank of India had undertaken a
review of the working of the Corporate Debt
Restructuring (CDR) Mechanism in the month of
August, 2004 and a special group was constituted
in September, 2004 by the Deputy Governor, RBI
as chairperson to review and suggest changes or
improvements, if any, in the CDR mechanism.
Based on the recommendations of special groups,
Corporate Debt Restructuring (CDR) guidelines
have been further revised. The changes to
existing guidelines are as following topics.
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4.  The RBI would not be a member of the CDR
standing Forum and Core Group. Its role will be
confined to providing broad guidelines.
 The Forum, while laying down the policies and
guidelines, should also set out the critical
parameters for restructuring (i.e., maximum
period for a unit to became viable under the
restructuring package, minimum level of
promoter’s sacrifice, etc.) to be followed by the
Corporate Debt Restructuring (CDR) empowered
group and Corporate Debt Restructuring (CDR)
cell for debt restructuring.
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5.  The CDR Mechanism will cover only multiple banking
accounts/syndication/consortium accounts with outstanding
exposure of 10 crore rupees and above by banks and
institutions.
 In terms of the extant institutions, in no case, requests of any
corporate indulging in wilful default, fraud or misfeasance even
in a single bank will be considered for reconstructing under
the CDR Mechanism. Modifications introduced recently in the
system laid down for the identification of the wilful defaulters
has made it more transparent and has provided an opportunity
to the borrower before the final classification is made. As a
general principle therefore, wilful defaulters should not be
entertained under the CDR Mechanism. However, the
deserving cases, the Core Group may review the reason for
classification of the borrower as wilful defaulters and satisfy
itself. Such exceptional cases may be admitted for restructuring
only with the approval of the Core Group. The crore group may
evolve policies and safeguards for dealing with the cases of
wilful default.
 The accounts where recovery suits have been filed by the
lenders against the company, may be eligible for consideration
under the Corporate Debt Restructuring (CDR) Mechanism
provided, the initiative to resolve the case under the CDR
Mechanism is taken by at least 75% of the lenders (by
value)and 60% of lenders.
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7.  In order to ensure discipline in the CDR Mechanism,
members of CDR may jointly or severally decide that
those banks that have not joined the mechanism as
members would not be eligible for future
consortium/syndication arrangements for lending. For
the purpose, a collection action clause may be
incorporated in the loan agreements involving
multiple lenders whereby all lenders agree to abide by
the majority decision for restructuring of an account
in case of need.
 If 75% percent of creditors by the value and 60% of
the creditors in number, approve a restructuring
package of an existing debt (i.e., debt outstanding)
under CDR Mechanism , it shall be binding on the
remaining creditors of the company registration.
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8.  During pendency of the case with the Corporate Debt
Restructuring (CDR) Mechanism, the usual assert classification
norms continue to apply and the process of reclassification of a n
assert does not stop merely because the case is referred to the
CDR Cell. If restructuring under the CDR mechanism is
approved and the approved package is implemented within
three months from the date of approval by the Empowered
Group, the assert classification status to be restore to the
position, which existed when the reference to the Cell was made.
Consequently, any additional provisions made by banks towards
deterioration in the assert classification status during the
pendency of the case with the Corporate Debt Restructuring
(CDR) Mechanism may be reversed.
 If an approved package remains unimplemented even three
months after the date of approval by the Empowered Group of
the company registration, it would indicate that the success
of the package is uncertain. Therefore, the assert classification
status of the account should not be restored to the position as on
the date of reference to the CDR cell. This will ensure that
banks which delay implementation of the package will not be
allowed to enjoy the regulatory concessions.
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10.  Additional finance, if any, is to be provided by the all lenders
irrespective of whether they are working capital or term
lenders on basis. The additional finance may be treated as
standard assert up to a period of one year after the first
interest or the initial payment whichever is earlier falls due
under the approved restructuring package. The income in this
period may be recognized only on cash basis. If restructured
assert does not qualify for up gradation at the end of the above
period, additional finance shall be placed in the same assert
classification category as the restructured debt.
 In case of any internal person, any creditor( outside the
minimum 75 and 60 percent) does not wish to commit
additional financing, that creditor will have the option to
either (a) arrange for his share of additional financing to be
provided by a new or existing creditors , or (b) agree to
deferment of the first year’s interest due to him after the
Corporate Debt Restructuring (CDR) package becomes
effective in company registration. The first year deferred
interest as mentioned above, without compounding, will be
payable along with the last instalment of the principal due to
the creditor.
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11. EXIT OPTION FOR CORPORATE DEBT
RESTRUCTURING (CDR) MECHANISM
 As mentioned in paragraphs above, the proposal for
restructuring package should provide for option to a
particular lender or lenders (outside the minimum 70 and 60
percent who have agreed for restructuring) who for any
internal reason, does/do not fully abide by the Corporate Debt
Restructuring (CDR) empowered group’s decision on
restructuring. The lenders who wish to exit from the package
would have the option to sell their existing share to either the
existing lenders or fresh lenders at an appropriate price,
which would be decided mutually between the existing lender
and taking over lender of the company registration. The
new lenders shall rank on par with the existing lenders for
repayment and servicing of the dues, since they have taken
over the existing dues to the existing lenders. In addition, the
‘exit option’ will also be available to all other lenders within
the minimum 75 and 60 percent provided the purchaser
agrees to abide by the restructuring package approved by the
Empowered Group.
 In order to bring more flexibility in the exit option. One time
settlement can also be considered, whether necessary, as a
part of the restructuring package.
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13.  Equity acquired by the conversion of debt/overdue
interest under the Corporate Debt Restructuring
(CDR) Mechanism is allowed to be taken up
without seeking prior approval from RBI even if
the capital market ceiling is breached, subject to
reporting such holdings to RBI every month along
with the regular statement. However, banks will
have to comply with the provisions of section 19(2)
of the BR Act.
 Acquisition of non-SLR securities by way of
conversion of debt are exempted from the
guidelines on Non – SLR securities subject to
periodical reporting to RBI.
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14.  For the second category of Corporate Debt
Restructuring (CDR), where the accounts have
been classified as ‘doubtful’ in the books of lenders,
a minimum of 75%(by value) and 60% of the
lenders in number should satisfy themselves of the
viability of the account and consent for such
restructuring. All Corporate Debt Restructuring
(CDR) approved packages must
incorporate lender’s rights to accelerate
repayment and borrower’s right to repay. The right
of recompense should be based on certain
performance criteria to be decided by the CDR
standing form
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