Debt restructuring to raise promoter ‘skin in the game’

Over the past couple of years, debt transactions have been centred on providing relief to highly leveraged Indian companies, and India has seen a series of regulations aimed at mitigating the financial stress and strengthening the enforcement regime for recovery of overdue debts.

In February 2014, the Reserve Bank of India (RBI) issued a circular titled “Framework for Revitalising Distressed Assets in the Economy – Guidelines on Joint Lenders’ Forum (JLF) and Corrective Action Plan (CAP)”, which envisaged the procedure to be followed by all lenders to deal with certain “special mention accounts”.

On 8 June 2015, the RBI issued a circular titled “Strategic Debt Restructuring Scheme” (SDR circular) by which lenders, through the JLF, will have a right to gain management control over borrowers. The intent is to ensure that promoters have more “skin in the game”.

Babu Sivaprakasam is a partner, Deep Roy is an associate partner and Megha Agarwal is an associate at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.