An Overview of Corporate Debt Restructuring (CDR)

Nilesh M Kharche, LLB, CS

Meaning

As the name suggests Corporate Debt Restructuring refers to the restructuring i.e. alteration of the Corporate Debts which generally may involve the alteration of re-payment period, amount repayable, amount of installment or the interest rate etc.

Origin

At several times corporate face financial hardships because of the factors not in their control. For supporting these corporate with safety of the money lent to them the need of the system like CDR arises.  Based on the experience in countries like UK, Thailand, Korea, Malaysia etc. of putting in place an institutional mechanism for restructuring of corporate debt and need for similar mechanism in India, Corporate Debt Restructuring System was evolved and detailed guidelines were issued by the Reserve Bank of India on August 23, 2001 for implementation by financial institution and banks. In 2008, comprehensive guidelines for both institutional restructuring as well as non-institutional restructuring were issued. Master guidelines were issued in 2012, the RBI revised the CDR guidelines on May 30, 2013.

Legal Basis

• The CDR Mechanism is a voluntary non-statutory system based on Debtor-Creditor Agreement (DCA) and Inter-Creditor Agreement (ICA).
• The DCA has a legally binding ‘stand still’ agreement binding for 90/180 days whereby both the debtor and creditor(s) agree to ‘stand still’ and commit themselves not to take recourse to any legal action during the period.
• However, the ‘stand still’ is applicable only to any civil action, either by the borrower or any lender against the other party, and does not cover any criminal action.
• It covers all categories of assets in the books of member-creditors classified in terms of RBI’s prudential asset classification standards.
• The cases of restructuring of standard and sub-standard class of assets are covered in Category-I, while cases of doubtful assets are covered under Category-II.
• Cases where recovery suits are filed also can be referred
• ICA signed by the creditors will be initially valid for a period of 3 years and subject to renewal for further period of 3 years thereafter.
• The lenders in foreign currency outside the country are not a part of CDR system
• One of the important clause of DCA is ‘stand still’ binding for 90 or 180 days by both sides whereby both parties commit themselves not to take recourse to any other legal action. However, this clause will be applicable only to civil action.

Eligibility and approval criteria

• Principle of approvals by super-majority of 75% creditors (by value) which makes it binding on the remaining 25% to fall in line with the majority decision.
• Principal approval by at least 75% of the creditors (by value) and 60% of creditors in number.
• The CDR Mechanism covers only multiple banking accounts, syndication/consortium accounts, where all banks and institutions together have an outstanding aggregate exposure of Rs. 10 Crore and above.
• BIFR cases are not eligible for restructuring under CDR system. However, large value BIFR cases may be eligible for restructuring under the CDR system if specifically recommended by the CDR Core Group.
  

Who may make a reference?

• Any or more of the creditor who have minimum 20% share in wither working capital or term finance or
• By the concerned corporate, if supported by a bank or financial institution having stake as above
  

Brief Process of CDR

1. Make a reference to CDR Cell with the requisite vote

2. CDR cell will conduct initial scrutiny by calling for flash report and place the same before Empowered Group (EG) within 30 days to decide feasibility of proposed CDR

3. The Flash Reports and Final Restructuring Proposals should be circulated ten days before and Review/Status Notes, seven days before the meeting of the CDR EG to the Nodal Officers of participating lenders

4. EG has the 90 days to examine the viability of Flash Report which can be extended to 180 days

5. Once the Flash report has been admitted super-majority vote needs to be obtained and Final Restructuring Proposal should be submitted to CDR EG at the earliest after clearance of Flash Report so that final package may be approved by CDR EG within a period of 60 days from the date of admission of the Flash Report, except for large and complicated cases, to be decided by CDR EG, for which the time frame would be 90 days. Extension can be sought upto maximum of 180 days which needs to be permitted by CDR core group

6. On admission of Flash Report/ in JLF route after determining restructuring as CAP, the borrower should open a current account with MI to be designated as “Pre-TRA” account which shall be operational within one month of approval of scheme

7. CDR Cell shall issue LOA/convey the decision of CDR EG to the lenders on approval of the minutes of CDR EG by the Chairman of the CDR EG, with a statement that LOA/decision of CDR EG is subject to confirmation of minutes at the ensuing CDR EG meeting and any modification taken place at the time of confirmation minutes would be advised separately

8. On confirmation of minutes of CDR EG, the amendments, if any, in the LOA/decision of CDR EG would be conveyed to the lenders and final LOA/letter conveying decision of CDR EG would be issued to lender and company

9. Approved CDR EG should be implemented within 120 days from the date of approval by CDR EG

10. Upon approval of TRA account should be made operational within one month

11. On approval of the restructuring package, Monitoring Institution (MI) should within 10 business days circulate draft MRA, without waiting sanction letter from individual members

12. Lenders should convey their observation within 3 weeks of receipt of draft MRA

13. MI should incorporate relevant modification and fix the date of execution within 1 week

14. On the similar lines Trust and Retention Account (TRA) Bank should circulate the draft TRA incorporating the modifications as per restructuring package and execute the same with MRA

15. Individual lenders to sanction restructuring package within 45 days of LOA

16. Implement the plan with 45 days of sanction of the restructuring package

17. Within 90 days from LOA create security and execute Master Restructuring Agreement

Few terms

Category 1 CDR System

i. There may be a situation where a small portion of debt by a bank might be classified as ‘doubtful’. In that situation, if the account has been classified as ‘standard’/’sub-standard’ in the books of at least 90% of creditors (by value), the same would be treated as standard/substandard, only for the purpose of judging the account as eligible for CDR.

ii. This is the main stream mechanism of CDR which is applicable only to Standard and Sub-Standard accounts.

 Category 2 CDR System

i. It is introduced for such cases where the projects found to be viable by the creditors but the accounts could not be taken up for restructuring under the CDR system as they fell under ‘doubtful’ category.

ii. Approval of special majority would require.

iii. In this case the obligation of additional financing would not be there i.e. only existing debs would be restructured and promoter would be required to bring the additional finance.

iv. All other norms of CDR would be applicable.

BIFR Cases

Large value BIFR cases can also be referred for restructuring under the CDR system if specifically recommended by the CDR Core Group. As per the Core Group decision, one of the eligibility criteria for taking up BIFR cases for restructuring under CDR mechanism is minimum cut-off limit of Rs. 15 crore of aggregate outstanding exposure of Banks/FIs.

Suit Filed Cases

Suit filed cases may also be eligible provided, the initiative to resolve the case under CDR system is taken by at least 75% of the creditors (by value) and 60% of creditors (by numbers).

Conversion of Debt into Equity

i. Lenders will have right to convert upto 20% of the term loan outstanding beyond seven years into equity at any time after seven years from the date of LOA issued by CDR Cell.

ii. Conversion would be done as per SEBI guidelines and Loan covenants.

iii. Conversion will not be mandatory on lenders who would also have option to take suitable debt instruments keeping in view their internal policy guidelines and Clause 12 of the Master Circular.

iv. The Banks should decide on the issue regarding convertibility keeping in view statutory requirement under section 19 of the Banking Regulation Act, 1949.

Additional Finance

i. Provisions relating to Additional finance and sharing thereof are covered in Clause 13 of the Master Circular.

ii. Any additional exposure over and above the exposure on the Cut-off-Date will be considered as additional finance.

iii. Additional finance if any to be provided by all creditors of a ’standard’ or ‘sub-standard account’ irrespective of whether they are working capital or term creditors, on pro-rata basis.

iv. Any creditor (outside the minimum 75 percentage and 60 per cent) does not wish to commit additional financing, that creditor will have an exit option.

v. Such exiting creditor can either (a) arrange for its share of additional finance to be provided by a new or existing creditor, or (b) agree to the deferment of the first year’s interest due to it after the CDR package becomes effective.

vi. The first year’s interest without compounding, will be payable along with the last installment of the principal due to the creditor.

vii. The exit option will also be available to all lenders within the minimum 75 percent and 60 per cent provided purchaser agrees to abide by restructuring package approved by the EG.

viii. Where the asset classification is subsequently upgraded on account of satisfactory performance, the lead WC lender should reassess/ release the WC requirement within a period of 3 months after up-gradation of account.

ix. In case there arises any conflict between the guiding principles mentioned in clause 13.1 and RBI guidelines, RBI guidelines shall prevail.

x. Lenders failing to sanction/disburse WC facilities will not get TRA benefits till release of their respective share of WC limits.

xi. If an account with any creditor is subjected to One Time Settlement (OTS) by a borrower before its reference to the CDR mechanism, any fulfilled commitments under such OTS may not be reversed under the restructured package. Payment commitments of the borrower arising out of such OTS may be factored in the restructuring package.

Recompense clause

Ordinary, ever package under CDR involves waiver and sacrifice on the part of lenders. The Guidelines issued by RBI envisage that every restructuring package must have right of recompense for the benefit of the lenders.

‘Recompense’ means recouping, whether fully or partially, the sacrifice made by the lenders as also waivers/concessions/ reliefs given by the CDR lenders to the borrower pursuant to the approved CDR package.

Clause 18 of the Master Circular provides the elements eligible for computation of recompense whereby lender has sacrificed such reduced interest rates, waiver of principal/interest dues etc. This clause provides that recompense will not be applicable in case of Withdrawal of package and One Time Settlement/ Negotiated Settlement. This clause also provides the trigger events such as exit of the case, improved performance, declaration of dividend etc.

On the occurrence of any of the trigger events, the referring/monitoring institution shall convene a meeting of Monitoring Committee within a period of one month from the date of occurrence on the trigger event to determine the quantum of the recompense amount payable. Calculation of recompense amount should be completed within maximum three months of trigger event.

In any case minimum 75% of the recompense amount should be recovered by the lenders and in case where some facilities under restructuring have been extended below base rate, 100% of the recompense amount should be recovered.

Clause 18 further provides form in which recompense amount can be recovered. Available cash surplus will decide the capability of the company to pay recompense amount in cash. This clause further provides the mode of calculating the same.

Recompense shall be crystallized on occurrence of trigger event and subsequently on recovery of the recompense either in the form of cash or debt instruments, the company will be treated as successfully exited from CDR. However, till the company continues under CDR, the lenders will have Right of Recompense.

One Time Settlements (OTS)/Negotiated Settlements (NS)

OTS/ NS generally involve an element of waivers/ scarifies for the lenders in respect of their outstanding debt and basically means offers given by the borrowers based on certain resource-raising programme including equity issue, strategic investment, venture capital, international offering etc.

Such OTS should preferably be completed within three years’ time without affecting other CDR payments. OTS payment shout be made out of TRA.

This clause 19 of the Master circular contains certain provisions outgoing lenders and new lenders.

Every lender under CDR has a right to exit or accept OTS. On the basis of intended OTS or proposed exit, no lender should withhold sanction of the approved CDR package.

Assignment of debt i.e. transfer of debt can be effected as per the procedure mentioned in this clause 19, provided the transfer can be made before the reference/ admission of CDR or after four months of issuance of LOA.

SME Debt Restructuring

• Applicable to loans availed by SMEs
• Operational rules of mechanism have been left to be formulated by the banks concerned.
• Mechanism will be applicable to all the borrowers which have funded and non-funded outstanding up to Rs. 10 crore under multiple/consortium banking arrangement.
• Banks may formulate, with the approval of their Board of Directors, a debt restructuring scheme for SMEs within prudential norms laid down by RBI
• Bank with maximum outstanding may work out restructuring package, along with the Bank having second largest share
• Bank should work out the restructuring package and implement the same within maximum of 90 days from the date of request
• Banks may review the progress in rehabilitation and restructuring of SMEs accounts on quarterly basis and keep the Board informed

Sub-standard NPA

With effect from March 31, 2005, a substandard asset would be one, which has remained NPA for a period less than or equal to 12 months. Such an asset will have well defined credit weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.

Doubtful Assets NPA

With effect from March 31, 2005, an asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation in full, – on the basis of currently known facts, conditions and values – highly questionable and improbable.

Loss Assets NPA

A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. In other words, such an asset is considered un collectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

Few points to note

1. All lenders to send clear mandates well in time so that minutes may be finalized within 7 working days from the date of meeting

2. MIS to review all cases where terms of approval have not been complied beyond 120 days from the date of approval and inform CDR EG

3. Promoters contribution should be increased from the present level of minimum 15% to minimum 25% and as far as possible entire amount should be brought upfront

4. Minimum promoters’ contribution in all cases would be 25% of lenders’ sacrifice or 2% of restructured debt, whichever is higher. However, since regulatory guideline is higher of 20% of lender’s sacrifice or 2% of restructured debt (which has to brought upfront), contribution beyond this amount may be permitted to be infused within a period of one year from the date of approval of the package

5. Conversion of debt into preference shares is not desirable and whenever it is necessary it should be in equity. Conversion of debt into equity can be agreed in case of listed companies, however should be avoided in case of unlisted companies

6. All cases for which CDR Core Group has given in-principal approval for Re-entry, Rework, entry of BIFR cases or cases of Willful Defaulters should be finalized and referred to CDR EG within 60 days of approval by CDR Core Group

7. Cutoff date shall be last day of preceding quarter in which reference is made to CDR Cell and the same should be within 90 days prior to the date of reference. Generally, the first day of the calendar quarter in which the reference is made is considered as COD

8. Master Circular issued on June 25, 2015 includes certain new terminologies such as Joint Lender’s Forum (JLF) Mechanism such as reporting by any one of lender to Central Repository of Information on Large Credits in certain cases, formulation and signing of LLF Agreement, this mandatory requirement where Account Exposure (AE) is Rs. 100 Crore or more, etc

9. The Master Circular,2015 contains the Corrective Action Plan (CAP) by JLF which can be highlighted as follows:

• CAP includes two options viz (a) Rectification, (b) Restructuring (Under JLF/CDR) Recovery
• JLF is required to arrive at an agreement on the option to be adopted for CAP within 45 days from (i) the date of account being reported as SMA-2 by one or more lender, or (ii) receipt of request from the borrower to form a JLF
• JLF need to sign the detailed final CAP within next 30 days from the date of arriving such an agreement
• JLF may decide to refer the restructuring to the CDR Cell or restructure independent of CDR mechanism
• Restructuring possible only if it is prima facie viable and the borrower is not willful defaulter, commitment from promoters are also demanded

10. Restructuring Referred by the JLF to the CDR Cell

• CDR Cell/JLF convener/ Lead Bank to arrange the Techno-Economic Viability (TEV) study and restructuring plan in consultation with JLF within 30 days from the date of reference to it by JLF
• For accounts with AE less than Rs.500 Crore, abovementioned Restructuring package should be submitted to CDR EG for approval on which CDR EG to take the final decision within 90 days which can be extended up to 180 days from the date of reference to the CDR Cell
• Cases referred to CDR Cell by JLF will have to be decided by the CDR EG within 30 days
• Upon approval of CDR EG, the same needs to be approved by all lenders and needs to be communicated to the borrower within nest 30 days for the implementation
• For accounts with AE of Rs. 500 crore and above, the TEV study and restructuring package prepared by CDR Cell/ JLF convener/ lead bank will have to be subjected to an evaluation by an Independent Evaluation Committee (IEC)
• IEC will have to provide its recommendation within 45 days
• After consideration of the views of IEC, in case JLF decides to go ahead the same should be communicated to CDR Cell
• CDR Cell will have to submit the restructuring package to CDR EG within total period of 7 days from receiving the views from the IEC
• CDR EG should decide on the approval/modification/rejection within next 30 days
• In case approved by the CDR EG, the same has to be approved by all the lenders and needs to be submitted to the borrower within next 30 days for implementation

11. The Master Circular,2015 also provides the prudential norms for Asset Classification under the clause 2 (F)

12. The Master Circular, 2015 also provides explanation for certain other issues/conditions such as viability milestones e.g. improvement in certain financial ratios after a period of time, JLF may also consider options such as transferring equity of the company by promoters to lenders, promoters infusing more equity etc, clause for sale of non-core assets

13. Paragraph 2.2 of RBI circular DBOD No Dir BC47/13.07.05/2006-07 dated December 15, 2006 on ‘Limits on Banks’ Exposure to Capital Markets’ stipulates certain limits on banks’ exposure to Capital Markets. In partial modification of the circular ibid, it has been decided that if acquisition of equity shares, as indicated above, results in exceeding the extant regulatory Capital Market Exposure (CME) limit, the same will not be considered as a breach of regulatory limit

14. Recompense amount should be estimated at the time of approval of package and should form part of the same. Subsequently, actual recompense amount should be calculated every year and form part of mandatory disclosure as Contingent Liability in the audited financials of borrower companies.

15. The term ‘Upfront’ in relation to promoter contribution shall mean within a period of 120 days from the date of approval by CDR EG including 30 days for lenders to convey their approval to borrower

16. 10% cap for conversion of debt into equity introduced by RBI on May 30, 2013 applies to upfront conversions only. Existing conditions regarding right to future conversion, viz. i) right to convert entire amount of FITL/WCTL at anytime during the currency of  the CDR package and ii) right to convert equity upto 20% of the term debt outstanding beyond 7 years, is beyond this cap of 10%

17. Lenders need to ensure pledge of promoters’ shareholding and execution of personal and corporate guarantees before implementation of approved packaged

18. The Master Circular, 2015 introduced the concept of Non-cooperative Borrower and its reporting

19. Decisions at CDR EG group meetings are taken by super majority vote

20. ‘Super Majority Vote’ shall mean votes cast in favour of a proposal by not less than sixty (60%) by number and seventy-five percent (75%) by value of the aggregate Principal Outstanding Financial Assistance as on cut off date

21. In certain matters like right of recompense, pre-payment premium, sharing of securities etc. (for original CDR debts) in which only the original CDR lenders’ interests were required to be protected, the exposure of new lenders in the account should not be included for counting 75% by value and 60% by number of members for super majority vote, since after considering the voting power of new lender(s), the decisions in above matters would get affected

22. In all other matters, exposure of all the CDR lenders, as at the end of previous quarter, should be taken for the purpose of voting

23. Once the MI presents the restructuring proposal and has established the need for additional exposure and has been approved by CDR EG, the same must be followed by all participating lenders in without any deviation

24. Mandates conveyed by lenders should be clear (Agreeable/ Non-agreeable)

25. The borrower-corporate should confine its banking facilities to CDR lenders only in order to ensure financial discipline

26. The Pre-TRA account will be a current account having the mode of operations as mentioned in the Clause 9 of Master Circular (Holding on Operations)

27. Pre-TRA and TRA account shall be operational within one month from approval

28. The Master Circular contains monitoring mechanism and fee structure in Clause 10. The Mechanism comprises of MI, Monitoring Committee and external agencies of repute to complement monitoring efforts and also to carry out work of Lender’s Engineer/Concurrent Audit/Special Audit/Valuation etc.

29. MC shall report to progress of implementation of the approved Restructuring Scheme to CDR Cell on monthly basis, in case of any difficulty MC may approach to CDR EG. In respect of any dispute, decision of CDR EG would be final. Master circular provides the operating practices for smooth conduct of MC meetings

30. All expenses for conduct of MC meetings are to be borne by the borrower-corporate. Fee structure would be as follows

Sr No	AE (FB+NFB) involved (Rs. Crore)	One-time Fee for preparation of Restructuring Package (Rs. Lakh)	Fee for MI (Rs. Lakh per annum)	Fee for TRA Bank (Rs.Lakh per annum)
1	Up to 100	5	2 (3)*	5
2	101-500	15	5 (7.50)*	7.50
3	501-1000	50	10 (15)**	10
4	Above 1000	100	15 (22.50)**	20
* If there are more than 5 CDR Lenders ** If there are more than 10 CDR Lenders

31. The Master circular also provides the conditions in which CDR package could be treated as implemented

32. The Master Circular provides the provisions of sharing of securities between lenders in Clause 11. It provides that existing security pattern should not be altered as far as possible.

33. Exclusive charge is defined as security charged with one lender and not a group of lenders. Lenders having exclusive charge on specific asset cannot be forced to share their charge on the said security. However, in spirit of overall success of the restructuring process of the restructuring package, the exclusive security may be pooled as per the stipulations mentioned in the Master circular. It also contains the clauses relating to sharing of security for unsecured loans

34. The entire process of creation of charge should be completed within 120 days from the date of LOA issued by CDR Cell

35. Clause 17 of the Master Circular contains provisions relating to Prepayment of restructured debt which can be made as per mutual agreement and with the approval of the CDR EG

36. Any CDR lender before initiating action for revocation of restructuring scheme/legal action for recovery in respect of CDR cases must inform CDR EG about the proposed action and if there is no response from CDR EG within a period of 60 days or if the limitation period is about to expire (whichever is earlier), the concerned lender may initiate action independently

37. After the end of restructuring period, borrower-Corporate has to exit from CDR system

38. When financial performance of the borrower-Corporate is more than 25% of the EBITA projections for two consecutive years, it will qualify for exit.

39. Any borrower-Corporate seeking exit from CDR should agree to make payment of recompense amount as per CDR guidelines

40. On full repayment/refinance, the company may exit subject to crystallization/ payment of recompense amount

41. In case of part prepayment, the same shall be made to all lenders and in respect of all loans (including WCTL, FITL) on pro-rata basis

42. Prepayment in other manner and invoking of recompense amount shall be subject to the approval of CDR EG

Structure of CDR

The structure can be classified as follows into three tires

• CDR Standing Forum

The CDR Standing Forum, the top tier of the CDR Mechanism in India, is a representative general body of all Financial Institutions and Banks participating in CDR system. The Forum comprises Chief Executives of All-India Financial institutions and Scheduled Banks and excludes Regional Rural Banks, co-operative banks, and Non-Banking Finance Companies.

It is a self-empowered body which lays down policies and guidelines to be followed by the CDR Empowered Group and CDR Cell for debt restructuring and ensures their smooth functioning and adherence to the prescribed time schedules for debt restructuring.

The Forum meets at least once every six months.

• CDR Empowered Group

The individual cases of corporate debt restructuring are decided by the CDR Empowered Group (EG), which is the second tier of the structure of CDR Mechanism in India. The EG in respect of individual cases comprises

• Executive Director (ED) level representatives of Industrial Development Bank of India Ltd., ICICI Bank Ltd., State Bank of India as standing members
• level representatives of financial institutions (FIs) and banks which have an exposure to the concerned company.

The Boards of all institutions/banks authorize their Chief Executive Officers and/or Executive Directors to decide on the restructuring package in respect of cases referred to the CDR system, with the requisite requirements to meet the control needs.
While the Standing Members of EG facilitate the conduct of the Group’s meetings, voting is in proportion to the exposure and number of the concerned lenders only.

In order to make the Empowered Group effective and broad-based and operate efficiently and smoothly, the participating institutions and banks approve a panel of senior officers to represent them in the CDR EG and ensure that they depute officials only from among the panel to attend the meetings of EG.

The EG considers the preliminary Flash Report of all cases of requests of restructuring, submitted to it by the CDR Cell.

After the EG decides that restructuring of a company’s debts is prima facie feasible and the concerned enterprise is potentially viable in terms of the policies and guidelines evolved by Standing Forum, the detailed restructuring package is worked out by the referring institution in conjunction with the CDR Cell.

However, if the referring institution/bank faces difficulties in working out the detailed restructuring package, the participating institutions/banks decide upon the alternate financial institution/bank which would work out the detailed restructuring package at the first meeting of the EG when the Flash Report comes up for discussion.

The EG is mandated to look into each case of debt restructuring, examine the viability and rehabilitation potential of the company and approve the restructuring package within a specified time frame of 90 days, or at best within 180 days of reference to the EG. The EG decides on the acceptable viability benchmark levels on the following illustrative parameters, which are applied on a case-to-case basis, depending on the merits of each case:

• Debt Service Coverage Ratio
• Break-even Point(Operating & Cash)
• Return on Capital Employed
• Internal Rate of Return
• Cost of Capital
• Loan Life Ratio
• Extent of Sacrifice

The EG meets on two occasions to discuss (Flash and Final Report) in respect of each borrower account. This provides an opportunity to the participating members to seek proper authorization from their CEO/ED, in case of need, in respect of those cases where the critical parameters of restructuring are beyond the authority delegated to him/her.

Having regard to the varied features of the borrower-corporates and their promoters/sponsors, they are classified into four categories for the purpose of stipulation of conditions. Borrower Class – A comprises companies affected by external factors pertaining to economy and industry. Class –B borrowers are such corporates/promoters who, besides being affected by the external factors, also have weak resources, inadequate vision and do not have support of professional management. Class-C borrowers are overambitious who have diversified into related/unrelated fields with/without lenders’ permission and those classified in Class-D are financially undisciplined borrowers. The categorization of borrowers is decided by the EG after ensuring that all conditions being stipulated have been discussed with the borrower concerned by the referring institution.

The decisions of the EG are final. If restructuring of debt is found to be viable and feasible and approved by the EG, the company is put on the restructuring mode. If restructuring is not found viable, then the creditors are free to take necessary steps for immediate recovery of dues and/or liquidation or winding up of the company, collectively or individually.

Sanction and Implementation of Approved Packages

In order to enhance the efficacy of CDR Mechanism a realistic time schedule has been prescribed by the CDR Standing Forum.

Once the final restructuring plan is approved and confirmed by the Empowered Group, CDR Cell issues a Letter of Approval (LOA) for the Restructuring package to all the concerned lenders. The individual lenders are required to sanction the restructuring package within 45 days from the date of issue of LOA and thereafter fully implement it in the next 45 days.

The status of sanction and implementation of restructuring packages is reviewed frequently at Empowered Group meeting. However, in order to place greater emphasis on implementation of the approved packages, Standing Committee of Core Group Member Banks constituted by the Core Group takes up close monitoring to ensure that the packages are implemented expeditiously.

• CDR Cell

The CDR Cell, the third tier of the CDR Mechanism in India, is mandated to assist the CDR Standing Forum and the CDR Empowered Group (EG) in all their functions.

All references for corporate debt restructuring by lenders/borrowers are made to the CDR Cell.

It is the responsibility of the lead institution/major stakeholder to the corporate to work out a preliminary restructuring plan in consultation with other stakeholders and submit to CDR Cell.

The CDR Cell makes initial scrutiny of the proposals received from the lenders/borrowers, in terms of the general policies and guidelines approved by the CDR Standing Forum, by calling for details of the proposed restructuring plan and other information and place for consideration of the CDR EG within 30 days to decide whether restructuring is prima facie feasible.

If found feasible, the referring institution/bank takes up the work of preparing the detailed restructuring plan with the help of other lenders, in conjunction with CDR Cell and, if necessary, experts engaged from outside. If not found prima facie feasible, the lenders may start action for recovery of their dues.

The EG can approve or suggest modifications to the restructuring plan, but ensure that a final decision is taken within a total period of 90 days. The period can be extended up to a maximum period of 180 days from the date of reference to the CDR Cell, if there are genuine reasons.

• Core Group

The CDR Core Group is carved out of the CDR Standing Forum to assist the Forum in convening the meetings and taking decisions relating to policy, on behalf of the Forum. The Core Group consists of Chief Executives of IDBI, SBI, ICICI Bank, BOB, BOI, PNB, Indian Banks Association (IBA) and Deputy Chairman of IBA representing foreign banks in India.
The Core Group lays down the policies and guidelines to be followed by the CDR Empowered Group and CDR Cell for debt restructuring. The guidelines also suitably address operational difficulties experienced in the functioning of the CDR Empowered Group. The CDR Core Group also decides on the modalities for enforcement of the time frame. The Core Group also lays down guidelines to ensure that over-optimistic projections are not assumed while preparing/approving restructuring proposals especially with regard to capacity utilization, price of products, profit margin, demand, availability of raw materials, input-output ratio and likely impact of imports/international cost competitiveness.

The Companies Act 2013

Section 230 of the Companies Act 2013 includes a new provision for companies proposing a merger or arrangement, to disclose to the National Companies Law Tribunal in an affidavit, a past or present scheme of debt restructuring and particulars thereof, which scheme must have the consent of not less than 75 per cent of the secured creditors by value. The details to be submitted to the Tribunal include a creditor’s responsibility statement; safeguards for the protection of other secured and unsecured creditors; an auditor’s report that the fund requirements of the company after restructuring shall conform to the liquidity test; a statement where the company proposes to adopt the CDR guidelines; and a valuation report of the company assets