Distressed Asset Advisory

It is CA-led advisory support to anyone dealing with a financially distressed company or asset in India — whether you want to acquire it, you are the lender trying to recover value, or you are the promoter trying to navigate the process. It covers evaluating the real financial position of a distressed business, structuring how an acquisition or resolution plan should work, and helping you choose between the different legal routes available — insolvency resolution under the IBC, SARFAESI enforcement, or a negotiated settlement.

The IBC, enacted in 2016, is India's unified insolvency law. When a company defaults on a debt above the prescribed threshold, a creditor (or the company itself) can apply to the National Company Law Tribunal (NCLT) to initiate the Corporate Insolvency Resolution Process (CIRP). Once admitted, a moratorium under Section 14 freezes most legal proceedings and asset transfers, a Resolution Professional takes over day-to-day management oversight, and a Committee of Creditors evaluates resolution plans submitted by prospective resolution applicants. If a plan is approved by the requisite creditor majority and sanctioned by NCLT, it becomes binding on all stakeholders. If no viable plan emerges, the company proceeds to liquidation.

Section 29A of the IBC bars specified categories of persons from submitting a resolution plan — including wilful defaulters, persons whose accounts have been classified as non-performing assets for a prescribed period and who have not remedied the default, undischarged insolvents, persons disqualified as directors under the Companies Act, and persons connected to any of the above through specified relationships. The intent is to prevent defaulting promoters from regaining control of the same company through the back door at a discount, and to keep genuinely ineligible bidders out of the process.

CIRP can be initiated by a financial creditor (a lender), an operational creditor (a supplier or service provider owed money), or the corporate debtor itself, once a default above the prescribed minimum threshold has occurred. The applicant files before the NCLT bench with jurisdiction over the company's registered office. If the NCLT is satisfied the application is complete and a default exists, it admits the application and CIRP formally begins, with a moratorium taking immediate effect.

Liquidation value is the estimated amount that would be realised if the corporate debtor's assets were sold off individually in a liquidation scenario — computed by IBBI-registered valuers as a statutory input for the Committee of Creditors. Resolution plan value is what a resolution applicant actually proposes to pay creditors under a going-concern resolution plan, which can be higher or lower than liquidation value depending on the applicant's assessment of the business's future earning potential. The IBC framework is designed to favour resolution plans that offer creditors more than liquidation value would, wherever a viable plan exists.

The SARFAESI Act 2002 allows a secured creditor — typically a bank or NBFC — to enforce its security interest directly, without going through a court process, once a loan account is classified as a non-performing asset per RBI norms. The lender can take possession of the secured asset under Section 13(4) and sell it, often through auction, to recover the outstanding debt. Unlike IBC, SARFAESI action targets a specific secured asset rather than the entire company, does not impose a moratorium on the company's other proceedings, and does not require Tribunal sanction for most enforcement steps (though the borrower retains statutory rights to approach the Debts Recovery Tribunal).

PPIRP, introduced in 2021 under Sections 54A onward of the IBC, is a faster, less disruptive insolvency resolution route available only to Micro, Small and Medium Enterprises (MSMEs) as classified under the MSME Development Act. It is initiated by the corporate debtor itself with the approval of not less than 66% of its financial creditors (by value) who are unrelated to the debtor, before a formal application is filed. Unlike full CIRP, the debtor typically remains in possession and management control during the process, with a base resolution plan submitted by the promoter as a starting point that competing resolution applicants can improve upon.

The Code prescribes an outer limit of 330 days from the insolvency commencement date, including any time spent in legal proceedings, for the CIRP to conclude — either with an approved resolution plan or a move to liquidation. In practice, litigation, resolution plan revisions, and NCLT bench workload frequently extend cases well beyond this statutory outer limit, and courts have permitted exceptions in specific circumstances. We advise clients to plan around a realistic range rather than the statutory ceiling alone.

Only if they are not disqualified under Section 29A. A promoter whose account with the corporate debtor (or a connected entity) has been an NPA for the prescribed period and who has not paid overdue amounts with interest before submitting a resolution plan is generally barred, along with several other disqualifying categories under the section. The provision was specifically designed to prevent promoters who drove a company into default from regaining control at a discounted resolution value without first curing their default.

Distressed-target diligence focuses on quantifying the gap between reported book value and realisable value — inventory that may be obsolete or overstated, receivables that are unlikely to be collected, contingent liabilities the Information Memorandum may understate, and tax exposure across open assessment years that will follow the company into a resolution. We also specifically test working capital actually available at closing versus what the balance sheet implies, since distressed companies frequently have working capital trapped in disputed or slow-moving receivables.

The Committee of Creditors comprises the financial creditors of the corporate debtor, and it is the body empowered under the IBC to approve or reject resolution plans, approve the resolution professional's key decisions during CIRP, and determine whether to extend the process or move to liquidation. A resolution plan requires approval by not less than 66% of the voting share of financial creditors on the CoC to be approved and submitted to NCLT for sanction.

Workmen's dues for a specified period before the insolvency commencement date rank with a defined priority in both the resolution plan waterfall (as part of the Section 30(2) fair-and-equitable requirement) and the liquidation waterfall under Section 53. A resolution plan must provide for the payment of insolvency resolution process costs, and payments to operational creditors including workmen, in a manner not less than what they would receive in liquidation. Beyond the statutory minimum, the resolution applicant's approach to retaining or restructuring the workforce is a commercial decision built into the plan.

Under IBC regulations, two Registered Valuers independently compute the liquidation value and the fair value of the corporate debtor for the CoC's use — these are distinct, prescribed methodologies, not the standard DCF-and-comparables approach used for a healthy business valuation. For a resolution applicant's own internal purposes, valuation typically layers a realistic going-concern earnings forecast (net of the turnaround investment required) on top of the statutory figures, since the price a bidder is willing to pay reflects future potential, not just the distressed present.

A one-time settlement is a negotiated agreement between a borrower and a lender to close out an outstanding loan for a lump-sum amount, typically less than the full outstanding balance, in exchange for the lender releasing its claim. It avoids the cost, time, and value-erosion risk of a formal SARFAESI enforcement or IBC process for both sides, provided the lender assesses the OTS recovery as comparable to or better than the realistic recovery under a formal process, net of time value and litigation cost.

Yes, subject to Section 29A eligibility and FEMA's foreign investment rules applicable to the sector. A foreign resolution applicant's equity infusion under an approved resolution plan is generally treated as FDI and must comply with the RBI's FDI policy and reporting requirements (including FC-GPR filing on the FIRMS portal upon allotment), with sector-specific caps and conditions applying exactly as they would in a non-distressed acquisition. PNPC's Dubai office frequently supports UAE-based investors evaluating Indian distressed opportunities alongside our Chennai, Bangalore, and Hyderabad teams.

Section 30(2) of the IBC requires a resolution plan to provide for payment of insolvency resolution process costs in priority, minimum payments to operational creditors and dissenting financial creditors not less than what they would receive in a liquidation scenario, and to be otherwise in compliance with applicable law. The CoC exercises significant commercial discretion in approving a plan that meets these statutory minimums, and courts have generally been reluctant to interfere with the CoC's commercial wisdom once the statutory floor is met.

A resolution plan approved by NCLT is legally binding, and successful implementation is monitored, often by a Monitoring Committee constituted under the plan itself or the resolution applicant's own governance obligations. Failure to implement the plan as sanctioned can trigger contractual and, in serious cases, statutory consequences, and NCLT retains supervisory jurisdiction over implementation disputes. This is why realistic feasibility stress-testing before submission — not optimistic modelling to win the CoC vote — is critical.

Issued by the RBI (the June 7, 2019 circular, replacing the earlier February 12, 2018 framework that was struck down by the Supreme Court), the Prudential Framework requires lenders to identify stress early — classifying accounts into Special Mention Account (SMA) categories before formal NPA classification — and gives lenders a defined window to implement a resolution plan for large borrowers before mandatory additional provisioning kicks in. It is the backbone framework governing how banks approach restructuring negotiations with a stressed borrower before matters escalate to SARFAESI or IBC.

For lenders and ARCs, we provide independent recovery-value assessment across the available routes — expected realisation under SARFAESI enforcement, expected realisation under an IBC resolution plan or liquidation, and expected realisation under a negotiated OTS — so the decision is grounded in comparative economics rather than procedural default. We also support due diligence on prospective resolution applicants and asset buyers from the seller/creditor side, and advise on the tax and accounting treatment of write-offs, provisioning, and recovery income.

Where a group has both Indian and UAE entities, distress in one jurisdiction can have cross-border implications — inter-company guarantees, intercompany receivables that become impaired, and lender exposure that spans both jurisdictions through cross-default or cross-guarantee clauses in financing documents. UAE insolvency and restructuring law (including the UAE's own Bankruptcy Law framework) operates independently of India's IBC, and a resolution or restructuring in one jurisdiction does not automatically bind creditors or proceedings in the other.

Several distinct tax considerations arise: the treatment of waiver of debt or haircut taken by lenders under the resolution plan (which can, depending on facts, be treated as income in the hands of the corporate debtor under Section 41(1) or otherwise, subject to specific IBC-related relief that has evolved through amendments and case law); the carry-forward and set-off of accumulated losses and unabsorbed depreciation of the acquired company under Section 79 of the Income-tax Act, which has specific relaxations for companies undergoing IBC resolution; and the tax basis the acquirer takes in the acquired assets or shares. These provisions are technical and have been amended and litigated over time.

Section 53 of the IBC prescribes a strict priority order for distribution of liquidation proceeds: first, insolvency resolution and liquidation process costs; then workmen's dues (for a specified period) ranking equally with secured creditors who have relinquished their security; then other employee dues; then unsecured financial creditors; then government dues and remaining secured creditor claims where security was not relinquished; then other debts; then preference shareholders; and finally equity shareholders or partners, who rank last and typically recover nothing in a genuine liquidation scenario.

Yes, the IBC prescribes a minimum default threshold for initiating CIRP, and this threshold has been revised by government notification at different points, including a significant increase during 2020. Because the applicable threshold can change by notification without amending the Code itself, we always verify the currently applicable minimum default amount at the outset of any engagement rather than relying on a previously known figure.

Upon admission of a CIRP application, NCLT appoints an Interim Resolution Professional (IRP) to take over management of the corporate debtor's affairs and constitute the Committee of Creditors. Within the prescribed period, the CoC either confirms the IRP as the Resolution Professional (RP) or appoints a different insolvency professional as RP. The RP then manages the CIRP through to its conclusion — inviting resolution plans, running the CoC process, and implementing the approved plan or transitioning to liquidation.

Yes. An operational creditor — a supplier, service provider, or employee owed money for goods or services rendered — can initiate CIRP once the prescribed default threshold is met and after following the statutory demand notice process under Section 8, giving the corporate debtor an opportunity to respond or dispute the claim before the application is filed with NCLT.

An ARC is a specialised financial institution registered with the RBI under the SARFAESI Act, whose business is acquiring non-performing loan portfolios from banks and NBFCs — typically at a discount to the outstanding book value, funded partly through Security Receipts issued to qualified buyers — and then pursuing recovery or restructuring of the underlying accounts using SARFAESI powers or, where appropriate, IBC.

PNPC structures fees for distressed asset mandates on a fixed-fee or milestone basis appropriate to the scope — a due diligence and Section 29A screening phase, a resolution plan structuring phase, and (where applicable) an implementation support phase are typically scoped and priced separately, discussed and confirmed in writing before work begins. We do not structure our core advisory fee as a pure success fee contingent on the deal closing, since that creates an incentive misaligned with giving the client an honest go/no-go recommendation.

Underestimating the gap between the headline resolution plan value or asking price and the actual cash and management effort required to stabilise and turn the business around post-acquisition. The acquisition price is often the smaller part of the total capital commitment — working capital rebuild, statutory compliance regularisation, vendor and customer relationship repair, and management bandwidth typically dwarf the initial consideration paid.

Yes. Resolution plans routinely involve a reduction of existing share capital, cancellation or dilution of existing promoter shareholding, and fresh issuance of shares to the resolution applicant — all of which the approved resolution plan can effect notwithstanding provisions of the Companies Act that would otherwise require separate shareholder approval, since Section 31 of the IBC gives the sanctioned plan overriding effect. This is one of the features that makes IBC resolution plans powerful compared to a conventional M&A share purchase.

The corporate debtor's moratorium under Section 14 does not extend to personal guarantors. Separately, the IBC's provisions on insolvency resolution for personal guarantors to corporate debtors (under Part III of the Code) allow creditors to pursue the personal guarantor through a distinct process even while the corporate debtor's CIRP is ongoing or after a resolution plan has been approved, to the extent the guarantee obligation is not extinguished by the corporate resolution.

We cross-check the Information Memorandum and management accounts against independently verifiable sources wherever accessible — filed GST returns (which reveal actual reported turnover), bank statements, statutory audit reports for prior years, and ITR filings — rather than accepting the IM's figures at face value. We also specifically probe for related-party transactions, off-balance-sheet arrangements, and contingent liabilities that a time-pressured IM compilation process can understate.

No. PNPC provides financial, tax, and valuation advisory — we do not appear as legal counsel before the NCLT or NCLAT, and we are not an Insolvency Professional. For every distressed asset mandate, we work in close coordination with the client's insolvency counsel and, where relevant, the appointed Resolution Professional, ensuring the financial case we build is presented consistently and accurately through the legal process.

We typically start with an honest scoping conversation: what specific opportunity or situation are you looking at, what is your realistic funding capacity, do you or any connected party have any prior default or NPA history that could raise a Section 29A concern, and what is your timeline expectation. This lets us give a genuinely useful initial read — including, where warranted, a clear recommendation not to proceed — before any formal engagement or fee commitment.