Debt restructuring is a process opted by business entities or individuals in order to prevent going into defaulters’ list on their existing debt. It involves negotiating a lower interest rate and extending the repayment period of the loan. This procedure is beneficial when a debtor is experiencing a cash crunch due to various extraneous factors which have hampered its ability to service its debt obligations in the present form/terms. Additionally, the creditor may even agree to clear the debt in exchange for equity in the business. Even countries might restructure their loans in certain situations. How does it work? There are various modalities of restructuring the debt such as, (i)lower the interest rate, (ii) extension on the payment date, (iii) change in terms of sanction like margin, (iv) conversion of debt to Equity or similar instruments  (v) combination of any two or more,(vi) restructuring the repayment schedule within the original repayment schedule etc. In order to prevent the business from coming to a standstill, this system is highly favourable. Moreover, one can even pay back his dues on time if he is expecting adequate cash flows in the future.

Benefits of Debt Restructuring
Debt restructuring can offer many benefits for your business, but most importantly, it helps you emphasize making your business survive and sustain. Some of the benefits are listed below

Free up your cash: deferment and /or reduction in installments/ interest rate free up the immediate cash and avoid mismatches.

Reduced interest rates: existing loans may be at a higher interest rate because your firm was in urgent need of funds. Therefore choosing debt restructuring for your business can save your firm from over the top interest rates. Thus you can keep the money for your forthcoming plans. There is also a possibility that the lenders may agree to lower interest rate initially and get compensated with a higher interest rate at a later date, to avoid any immediate cash flow mismatches

Make your finances more organized: If you have taken multiple loans for your business, then debt consolidation will help you plan your finances more wisely. You can make sound decisions by converting these loans into in single loan with a restructured repayment schedule to match the existing and projected cash flows.

Functions Of Debt Restructuring
As per the RBI, debt restructuring has several purposes for coming into existence.

To ensure that a timely and transparent mechanism is present to support the borrowers in financial distress.

To reduce the losses incurred to the lenders and shareholders through this procedure

To protect and preserve those corporations that are facing difficulty due to any reason

To revive the firms keeping in mind its stakeholders and creditors.

Hence debt restructuring is a win-win situation both for the lenders and the borrowers. Moreover, the small businesses who are thinking of expanding their business and have just set their foot into the business industry can benefit from this process.

Preparation of Resolution Plan

Vetting of Resolution Plan

Bid Evaluation Advisory

Process Advisory

Pre-pack Insolvency Support

Resolution Plan is the basic document required by the prospective Resolution Applicants, who aspire to bid for the Corporate Debtor during resolution process. The Resolution Plan for IBC process are not only needs to be compliant with Section 30(2) of the Insolvency and Bankruptcy Code, it has also to comply to Request for Resolution Process (RFRP) besides having all the mandatory contents of the Resolution Plan in terms of the CIRP Regulations and the resolution plans outside the IBC process needs to be complied with the terms and conditions of any particular restructuring scheme.

A well thought and soundly drafted Resolution Plan is, therefore, critical to take care of the nuances and ensure that it is found to be eligible for consideration by the Committee of Creditors/Joint lender forum. A dedicated team of experienced and qualified professionals of FairVal helps the prospective bidders in preparation of resolution plans. This includes providing technical inputs, guidance on commercial consideration besides legal and tax advisory so that the Resolution Plan has all the requisite information and meets the tests of feasibility and viability.

FairVal also provides technical assistance and inputs and vets the resolution plans for the prospective bidders and ensure its compliance with the requirements under stature of the scheme of resolution as well as other applicable laws of the land.

Evaluation of Resolution Plans, received pursuant to Request for Resolution Plan (RFRP), is very critical in order to ensure that the best compliant plan gets selected and approved by Committee of Creditors (CoC). FairVal’s dedicated expert team assists the CoC /Resolution Professional in evaluation of Resolution Plans to vet their compliance with the Code, CIRP Regulations and Request for Resolution Process (RFRP). Feasibility and viability of the various Resolution Plans is checked, and these are evaluated strictly in accordance with the Evaluation Matrix approved by the CoC and contained in the RFRP.

Various plans are evaluated and ranked in terms of quantitative and qualitative parameters and scores are assigned strictly as per the Evaluation Matrix. This will help COC in providing professional inputs on the areas/ points of negotiation with eligible Resolution Applicants (RAs) but also helps in negotiating with RAs to maximize value for the stakeholders in line with the objectives of IBC. It is ensured that the process followed is transparent and professional and all the deadlines are met.

Lenders are facing several challenges for timely resolution of the stressed assets. They are not only required to ensure that all the requisite rules, regulations and guidelines are followed, but also see that the processes runs in an open and transparent manner. This is essential to protect the lenders from possible questions/ queries at a later stage. The resolution may entail One Time Settlement/ Compromise Settlement, Bringing of Strategic/ Financial investors on board, who are willing to infuse funds and revive the Corporate Debtor or Business/ Financial Restructuring of the facilities granted to the Corporate Debtor.

Swiss challenge is one of the methods, whereby the right value is discovered through an open process and has the comfort of the availability of the anchor bidder with the Right of First Refusal (ROFR). This ensures that the effort leads to solution, with anchor bidders available as backup. FairVal’s expert team renders assistance to the lenders so as to ensure that the processes are run in a professional, transparent, efficient and effective manner and the stressed assets are resolved timely.

Pre-pack Insolvency support