The Hindu : Business : Draft norms for takeover of failed businesses issued

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Saturday, Dec 06, 2008
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Draft norms for takeover of failed businesses issued

Special Correspondent

MUMBAI: The Reserve Bank of India on Friday stipulated that a securitisation company (SC) or a reconstruction company (RC) may resort to ‘change in’ or ‘take over’ of the management of the business of the borrower, “when the amount due to it from the borrower is not less than 25 per cent of the total assets owned by the borrower.”

The object of the draft guidelines is to ensure fairness and transparency, and to build in a system of checks and balances while effecting change in or take over of the management of the business of the borrower by the securitisation companies or reconstruction companies (SCs/RCs) under Section 9(a) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (SARFAESI Act).

A SC or RC, the RBI stated, may resort to change in or take over of the management of the business of the borrower for the purpose of realisation of its dues from the borrower subject to the provisions of these guidelines.

The securitisation or reconstruction companies may resort to change in or take over of the management of the business of the borrower, where the borrower is financed by more than one secured creditor (including SC/RC), secured creditors (including SC/RC) representing not less than 75 per cent of the total secured debt agree to such action, provided that one or more of the circumstances exist. The RBI also stipulated that the SC/RC shall give a notice of 60 days to the borrower indicating its intention to effect change in or take over the management of the business of the borrower.

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