Under the Insolvency & Bankruptcy Code (IBC) 2016, interim financing is a short-term super-secure loan that allows an insolvent company to remain operational while undergoing a Corporate Insolvency Resolution Process (CIRP).
New Delhi-based LegalPay, which also works as an alternative-investments platform specializing in legal financing, is also in talks with some more such NBFCs to fund companies under CIRP. The firm is targeting mid-market companies, including micro-small and medium enterprises (MSMEs), undergoing insolvencies requiring up to Rs 5 crore.
“This will provide investors with more opportunities to invest in distressed debt assets over the foreseeable shorter time horizon,” said Kundan Sahi, founder of LegalPay.
According to the recent RBI financial stability report, the gross non-NPA ratio will likely increase from 7.48% in March 2021 to 9.80 % – 11.22 % in March 2022.
“Investing in distressed debt assets is an interesting space for us as investors, and we look forward to our partnership with LegalPay to explore opportunities in the insolvency market/space,” said Smriti Ranka, Managing Director of Jumbo Finance.
As per the latest report by the Insolvency & Bankruptcy Board of India (IBBI), since the inception of the IBC, a total of 4708 CIRPs have commenced by the end of September 2021. Out of these companies, 421 completed approval of the resolution plan.
Over five years since the Insolvency and Bankruptcy Code (IBC) took effect; the new law has helped recover about Rs 2.5 lakh crore or around one-third of the admitted financial claims from insolvent firms, said rating agency Crisil in its November 3 report.
The rating agency added that the new code marked a significant shift in India’s insolvency resolution process and credit culture.
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