Status as on- 20/02/2023
Interim finance in India under the Insolvency and Bankruptcy Code (IBC) refers to the financial support that is provided to the corporate debtor during the insolvency resolution process. The primary objective of interim finance is to ensure that the debtor can continue to operate its business and generate income, which can be used to pay off the creditors.
Under the IBC, interim finance can be raised by the resolution professional appointed by the National Company Law Tribunal (NCLT). The resolution professional is authorized to raise interim finance after obtaining approval from the Committee of Creditors (CoC).
The CoC is responsible for evaluating the proposal for interim finance and determining the terms and conditions of the loan. The CoC may also decide to prioritize the repayment of the interim finance over other debts owed by the debtor.
Interim finance can be secured or unsecured, depending on the nature of the loan and the collateral offered by the debtor. The resolution professional may also seek the assistance of financial institutions or banks to provide interim finance.
Provisions relating to if during CIRP and Liquidation
Interim Finance during CIRP:
- The resolution professional may, with the approval of the Committee of Creditors (CoC), raise interim finance to fund the operations of the company during the CIRP.
- The resolution professional can raise this finance on a priority basis and the lenders providing such finance have the right to recover the amount with priority in the event of liquidation.
- The interim finance can be secured or unsecured and the resolution professional can approach any financial institution or bank to provide the same.
Interim Finance during Liquidation:
- The liquidator may, with the permission of the National Company Law Tribunal (NCLT), raise interim finance to liquidate the company’s assets.
- The liquidator can approach any financial institution or bank to provide interim finance, which can be secured or unsecured.
- The lenders providing such finance have the right to recover the amount with priority in the event of liquidation.
- In both cases, the terms and conditions of the interim finance need to be approved by the CoC or the NCLT, as the case may be. The objective of providing IF is to ensure that the debtor or the company under liquidation has sufficient funds to continue operations or complete the liquidation process, as the case may be, and to maximize the value of assets for the benefit of all stakeholders.
Due to the lower number of players providing interim finance, interim finance funds are issued at higher interest rates than the market rate. Interim financehas the “superiority” status in the pecking order of creditors. Lenders are eligible for interest payments even after the process of liquidation is begun and also receive preferential treatment during it.
In summary, interim finance plays a crucial role in the insolvency resolution process under the IBC in India. It provides the necessary financial support to the debtor to continue its operations and generate income, which can be used to repay the creditors.