Corporate Debt Restructuring

It is a negotiated change to the terms of a company's existing loans — the repayment schedule, interest rate, tenure, or security — because the company cannot service the debt as originally agreed, but the underlying business is still viable. Instead of the lender pursuing enforcement or the company heading toward insolvency, both sides agree to revised terms that the business can actually meet, so the lender recovers more value over time than it would through a forced sale of assets.

Restructuring is a consensual, negotiated process between the borrower and its lender(s) — the company remains in control of its operations throughout. Insolvency under the IBC is a formal, tribunal-supervised process triggered by a default above the prescribed threshold, where control typically passes to an interim resolution professional and then, if a resolution plan is approved, potentially to a new owner. Restructuring is generally the earlier, less disruptive path; IBC becomes the relevant path once restructuring has failed, was never attempted in time, or a creditor has already filed an application.

SMA (Special Mention Account) is RBI's early-warning classification: SMA-0 for accounts where a payment is overdue but within 30 days, SMA-1 for 31-60 days overdue, and SMA-2 for 61-90 days overdue. Beyond 90 days, the account typically becomes a Non-Performing Asset (NPA). This classification is applied automatically the moment any payment is even a day overdue on any lender's books, and lenders monitor SMA status closely because it triggers internal review and reporting obligations. The earlier a company engages on restructuring — ideally at SMA-0 or SMA-1 — the more options remain genuinely open.

It is the current RBI regulatory framework (issued 7 June 2019 under Section 35AA of the Banking Regulation Act, 1949) governing how banks and other regulated lenders must handle stressed corporate accounts. It requires lenders to review a borrower's account promptly upon default, and for accounts with exposure across multiple lenders, it enables them to enter an Inter-Creditor Agreement (ICA) and formulate a resolution plan collectively, with a defined majority (75% by value, 60% by number) able to bind all lenders including dissenters. It replaced the earlier CDR Cell, JLF, S4A, and SDR mechanisms, which were withdrawn following the Supreme Court's Dharani Sugars judgment striking down the RBI's earlier February 2018 circular.

An ICA is an agreement executed among all lenders with exposure to a stressed borrower, under which they agree on a joint decision-making process for the resolution plan — rather than each lender pursuing its own separate action. Under the current framework, a resolution plan approved by 75% of lenders by value and 60% by number binds all lenders who are party to the ICA, including those who voted against it. For a company with a multi-bank consortium, this is the mechanism through which a single, coordinated restructuring outcome is achieved instead of a fragmented set of individual lender actions that can work against each other.

A TEV study is an independent assessment — typically by a specialist consultant empanelled with or appointed by the lender — of whether the borrower's business is technically and economically viable to sustain a restructured repayment schedule. It examines the business model, market position, cost structure, and cash flow projections in detail. It is usually commissioned by the lender (with the cost often borne by the borrower per the lender's policy), not by the company itself, but the study's outcome depends heavily on the quality and completeness of the data and access the company provides.

An OTS is a negotiated, discounted, lump-sum payment that closes out a loan account in full and final settlement — the borrower pays less than the total outstanding, and in exchange, the lender agrees to treat the account as fully settled and issues a no-dues certificate. It is fundamentally different from restructuring: restructuring keeps the loan alive under revised terms with the business continuing to service it over time; an OTS ends the lending relationship entirely with a one-time payment. Lenders typically consider OTS when they have concluded that a going-concern restructuring is not achievable, but a negotiated payoff still recovers more than enforcement action would.

Yes. An account settled through OTS is typically reported to credit information companies (CIBIL and others) with a 'settled' status rather than 'closed', which is generally viewed less favourably by future lenders than a fully repaid loan. This can affect the promoter's and the company's ability to access fresh credit for a period afterward. This trade-off — resolving current distress against future borrowing access — is a genuine consideration in deciding between pursuing a harder-fought restructuring versus a faster OTS.

It depends on the facts. Where a loan was originally taken for a trading purpose or where the waived amount was previously claimed as a deduction (such as unpaid interest already expensed), the waiver can be treated as income under Section 41(1) of the Income-tax Act or under general principles established through judicial precedent. Where the loan was a capital-account borrowing (for example, funding a capital asset) and never claimed as a revenue deduction, the tax treatment of a waiver can differ and has been the subject of considerable litigation, including the Supreme Court's ruling in Mahindra & Mahindra concerning waiver of a loan used for capital asset purchase. The correct treatment depends on the original purpose of the loan, its accounting history, and the specific nature of the waiver.

The specific requirement to recognise a 'gain on restructuring' through profit and loss, per the derecognition and modification principles of Ind AS 109, applies to companies that report under Indian Accounting Standards (Ind AS) — generally larger companies and those meeting prescribed net worth or listing thresholds under the MCA's Ind AS roadmap. Companies reporting under the older Accounting Standards (AS) framework follow a different, generally simpler treatment for restructured debt. Either way, the accounting treatment of a restructuring has a direct bearing on reported profit, and by extension, on tax computation and on how the balance sheet reads to future lenders or investors.

Not necessarily too late, but the situation is materially more urgent. A Section 13(2) notice under the SARFAESI Act is a formal demand giving the borrower 60 days to repay the outstanding dues before the lender can proceed to take possession of secured assets. Receiving this notice does not close the door on restructuring or an OTS discussion — many lenders remain open to a negotiated resolution even after issuing the notice, particularly if the borrower responds promptly with a credible plan. But the window narrows quickly, and the lender's posture becomes materially less flexible with each passing week of the 60-day period.

A pre-pack (pre-packaged insolvency resolution process) is an expedited version of the IBC process introduced in 2021 (Chapter III-A of the IBC), available specifically to corporate debtors classified as Micro, Small or Medium Enterprises under the MSME Development Act. It allows the company's existing management to negotiate a resolution plan informally with its unrelated financial creditors before filing, and then take that base plan to the NCLT for a faster, less disruptive approval process compared to a full CIRP. It requires majority approval from unrelated financial creditors before the NCLT application is filed.

A personal guarantee is a separate, distinct obligation from the corporate loan — restructuring or settling the corporate account does not automatically release the guarantor unless the restructuring or settlement agreement explicitly addresses the guarantee. If the corporate account defaults and proceeds to insolvency, personal guarantors of corporate debtors can themselves be subject to a separate insolvency process under Part III of the IBC (introduced via rules effective December 2019), which the Supreme Court upheld in the Lalit Kumar Jain judgment. This means a promoter's personal financial exposure can continue, or even accelerate, independent of what happens to the company.

Yes, there is no absolute statutory bar on multiple restructurings, but each subsequent restructuring faces materially higher scrutiny from lenders. A second restructuring within a short period signals to the lender that the first restructuring's viability assumptions did not hold, which affects both the lender's willingness to approve further relief and the provisioning and classification treatment the lender must apply to a repeatedly restructured account under RBI's prudential norms.

At minimum: three years of audited financial statements, recent management/provisional financials, a detailed monthly cash flow (historical and projected), receivables and payables ageing, details of the specific cause of stress, and a credible forward business plan. For larger exposures, this data feeds directly into the TEV study. Lenders are far more likely to engage seriously with a proposal backed by granular, internally consistent data than with a general assurance that things will improve.

There is no fixed statutory percentage — it is a matter of lender policy and negotiation, and it varies by exposure size, sector, and the lender's assessment of the promoter's actual capacity to contribute. What lenders consistently look for is visible commitment: additional equity infusion, a personal guarantee where one does not already exist, pledge of unencumbered shares or assets, or a combination. The absence of any promoter contribution is one of the more common reasons a restructuring proposal fails at the credit committee stage, regardless of how sound the underlying business case is.

If the proposal is rejected, or if the review period under the RBI framework lapses without an approved resolution plan (which, for large exposures, can itself trigger additional provisioning consequences for the lender under the prudential framework), the lender retains its full range of enforcement options — SARFAESI action against secured assets, filing an application under the IBC as a financial creditor, or civil recovery proceedings. This is why we run contingency planning in parallel with restructuring negotiations rather than waiting for a rejection to start considering the alternative path.

Yes, materially. Statutory dues — GST, TDS, PF, ESI, professional tax, and income tax arrears — are visible to lenders through the company's compliance filings and can independently trigger regulatory action (attachment of bank accounts, recovery proceedings) regardless of what is happening with the lender's own restructuring process. A company negotiating restructuring while carrying significant unresolved statutory arrears presents a materially weaker case, because it signals broader financial distress beyond the specific loan account.

A formal restructuring under the RBI framework, or a change in asset classification to 'restructured', is typically reported to credit information companies and can affect the company's and, in some structures, the promoter's credit standing. This is separate from, but related to, the credit record impact of an OTS discussed elsewhere. The extent of the impact and how long it persists on the credit record depends on the specific classification and subsequent repayment performance under the restructured terms.

The RBI's Prudential Framework applies broadly to regulated lending institutions, including scheduled commercial banks, All India Financial Institutions, and NBFCs (including Housing Finance Companies) above specified asset-size thresholds — so restructuring of NBFC-lent debt generally follows the same framework where the NBFC is a regulated entity covered by the circular. For smaller, unregulated private lenders or informal lending arrangements, restructuring is a purely contractual, bilateral negotiation without the RBI framework's structure — which can mean more flexibility in some respects, but also less procedural protection and no ICA mechanism to bind other lenders.

The scope and fee depend on the complexity of the exposure — the number of lenders, whether an ICA-governed multi-lender process is involved, whether a TEV study needs coordination, and the extent of documentation and negotiation support required. PNPC agrees the scope and fee in writing before work begins, following an initial diagnostic conversation that helps size the engagement realistically. We do not price restructuring engagements as a percentage of the debt outstanding — the fee reflects the actual advisory work involved.

Lenders deal with restructuring proposals constantly and evaluate them against internal credit and provisioning frameworks that most promoters — understandably focused on running their business — do not have visibility into. A proposal built without that lens tends to be either unrealistically optimistic (and gets rejected) or unnecessarily conservative (and concedes more than needed). PNPC brings the financial modelling discipline, the understanding of what a credit committee and TEV consultant are actually assessing, and the experience of what terms are realistically negotiable — while you remain focused on running the business through the stress period.

Cash flow and viability diagnostic, restructuring or OTS proposal preparation, TEV study coordination and data room support, negotiation support across single or multiple lenders including ICA navigation, accounting and tax treatment structuring for the restructured or settled debt, documentation review against negotiated terms, and post-restructuring compliance calendar setup. For clients where restructuring does not succeed, we also coordinate the transition to formal insolvency advisory, including pre-pack eligibility assessment where applicable.

Both. Working capital facilities (cash credit, overdraft, bill discounting) and term loans can each be restructured, though the mechanics differ — working capital restructuring often involves resetting drawing power, revising the operating cycle assumptions, or converting a portion of a cash credit facility into a term loan (a Working Capital Term Loan, or WCTL) to ease near-term repayment pressure. A company with both facility types typically needs a combined restructuring proposal that addresses the interaction between them, since working capital availability directly affects the cash flow that services the term loan.

A bank or NBFC restructuring addresses only the specific lending relationships covered by that process. It does not automatically restructure dues owed to trade creditors, employees, or statutory authorities, which continue to require separate management. In practice, a company undergoing financial stress often needs to negotiate extended terms with key suppliers and manage payroll obligations in parallel with the formal lender restructuring — and a lender evaluating the restructuring proposal will often want visibility into how these other obligations are being handled, since unresolved trade or statutory arrears can themselves trigger further stress.

External Commercial Borrowings (ECBs) are governed additionally by FEMA's ECB framework and RBI's ECB Master Direction, alongside the general RBI Prudential Framework where the lender is a regulated Indian entity or where the ECB has been on-lent domestically. Restructuring an ECB can involve additional considerations — refinancing conditions, all-in-cost ceiling compliance for any revised terms, and reporting to RBI through the Authorised Dealer bank. Where the lender is an offshore, unregulated entity, restructuring is a bilateral contractual negotiation but must still respect the FEMA reporting and compliance framework applicable to the original ECB.

If restructuring negotiations do not succeed and the company enters the Corporate Insolvency Resolution Process, the advisory need shifts — the company's management (or, if a resolution plan is being submitted by a promoter or third party, the resolution applicant) requires financial and compliance support to engage credibly with the Resolution Professional and the Committee of Creditors. PNPC's separate Insolvency & Debt Resolution Advisory and IBC Resolution Professional Support services address this phase specifically; where a client's engagement with us began at the restructuring stage, we carry forward the financial and business context we have already built rather than starting from zero.

It can, depending on the terms negotiated. Some restructuring plans involve conversion of a portion of debt into equity or convertible instruments (debt-to-equity conversion), which dilutes existing shareholders. Others are structured purely as a change in repayment terms with no equity impact at all. Whether equity dilution is part of the plan depends on the lender's assessment of what is needed to make the restructured debt serviceable, and on what the promoters are willing to offer as part of demonstrating commitment and sharing the burden of the resolution.

Groups with operations or lending relationships spanning India and the UAE face restructuring considerations on both sides — India's RBI framework and FEMA rules on one side, and UAE banking and, where relevant, UAE bankruptcy law provisions on the other, along with the tax and treaty implications (India-UAE DTAA) of any intercompany funding used as part of a restructuring solution. PNPC's Chennai, Bangalore, Hyderabad, and Dubai offices coordinate as a single team on such matters, rather than the client needing to brief separate India and UAE advisors independently and manage the coordination themselves.

The signs are usually visible internally well before a lender's SMA classification triggers: drawing power utilisation consistently near the sanctioned limit, receivables ageing stretching beyond historical norms, reliance on ad hoc short-term borrowing to cover routine payables, delayed statutory payments (GST, TDS, PF), and a widening gap between projected and actual monthly cash flow. Any one of these in isolation may not be significant; two or three appearing together over a sustained period is a signal worth acting on immediately.

There is no fixed minimum, but the right approach scales with size. For a small, single-lender exposure, a straightforward bilateral negotiation — without invoking the full formal apparatus — is usually the proportionate response, and PNPC scopes the engagement accordingly rather than applying a heavier process than the situation warrants. For larger, multi-lender exposures where an ICA-governed process and TEV study are realistically in play, the full engagement scope becomes relevant. We assess this at the initial diagnostic stage and recommend the proportionate path.

The diagnostic phase — reviewing lender exposure, financial statements, and cash flow position — typically begins within days of engagement, since this initial work does not depend on lender cooperation. Formal lender engagement begins once the diagnostic and initial proposal framing is complete, usually within the first two to three weeks. Where the situation is urgent — such as a recently received SARFAESI notice — PNPC prioritises the initial response and lender communication ahead of the full diagnostic to preserve the negotiation window.