As part of restructuring process, Reserve Bank of India (RBI) has permitted asset reconstruction companies (ARCs) to convert a portion of debt into shares of the borrower company, provided shareholding does not exceed 26 percent of the post converted equity of the company under reconstruction.
However, before doing so, such companies would require the consent of secured creditors holding not less than 60 per cent of the amount outstanding to a borrower as against 75 per cent at present for purpose of enforcement of security interest.
These changes have been made on recommendations of the Key Advisory Group constituted by the Government on the Asset Reconstruction Companies (ARCs).
ARCs are specialised entities, which pick up stressed assets of banks and financial institutions at a discount and make recovery. Such companies are also permitted to acquire debt from other ARCs subject to certain conditions, including that such transaction should settled on cash basis. Further, the selling ARCs should utilize the proceeds received only for the purpose of redemption of underlying security receipts.
However, before doing so, such companies would require the consent of secured creditors holding not less than 60 per cent of the amount outstanding to a borrower as against 75 per cent at present for purpose of enforcement of security interest.
These changes have been made on recommendations of the Key Advisory Group constituted by the Government on the Asset Reconstruction Companies (ARCs).
ARCs are specialised entities, which pick up stressed assets of banks and financial institutions at a discount and make recovery. Such companies are also permitted to acquire debt from other ARCs subject to certain conditions, including that such transaction should settled on cash basis. Further, the selling ARCs should utilize the proceeds received only for the purpose of redemption of underlying security receipts.
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