CA Shushant Singhal
Corporate Debt Restructuring (CDR) is basically a mechanism by way of which company endeavors to reorganize its outstanding obligations.
When a corporate is having severe financial crisis in terms of:
It generally resorts to Corporate Debt Restructuring Mechanism.
The reorganization of the outstanding obligations can be made by any one or more of the following ways:
CDR gives the lenders a unique opportunity to avoid being encumbered with NPA’s.
CDR becomes an instrument for the lenders, i.e. the banks, to aid the transformation of otherwise Non-Performing Assets into productive assets.
The CDR structure in India is based upon the three tier structure as follows:
The legal basis to the CDR System is provided by the Debtor-Creditor Agreement (DCA) and the Inter-Creditor Agreement (ICA). All banks /financial institutions in the CDR System are required to enter into the legally binding ICA with necessary enforcement and penal provisions. The most important part of the CDR Mechanism which is the critical element of ICA is the provision that if 75% of creditors (by value) agree to a debt restructuring package, the same would be binding on the remaining creditors.
Similarly, debtors are required to execute the DCA, either at the time of reference to CDR Cell or at the time of original loan documentation (for future cases). 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. ‘Stand Still’ is necessary for enabling the CDR System to undertake the necessary debt restructuring exercise without any outside intervention, judicial or otherwise. 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.
CDR Cover following cases