Introduction
Every aspect of our lives has been affected by Covid-19, whether personal or professional. But when working from home, home deliveries, and other conveniences made life easier, businesses continue to suffer from economic slowdowns, industrial downturns, and inflation. According to the Minister of State for Corporate Affairs Rao Inderjit, nearly 2000 companies are currently involved in the CIRP (Corporate Insolvency Resolution Process), which highlights the economic downturn and the need for financial support among these companies. That's where Interim Finance comes in. According to Insolvency and Bankruptcy Code, 2016, Interim Finance is defined as financial debt raised by Interim Resolution Professionals during Corporate Insolvency resolution processes. While undergoing the Corporate Insolvency Resolution Process (CIRP), the insolvent company can use these funds to remain operational and/or make payments for the CIRP costs. In brief, Interim Finance is a debt given to a company that is going through CIRP, raised by the resolution professional.
‘Company is already in insolvency. Isn’t it too risky?’
This is the most asked question about Interim Finance and the definitive answer can be found in the IBC (Insolvency and Bankruptcy Code), 2016, which regulates all insolvencies in India, and discusses the waterfall mechanism (the priority list for repayment) in great detail. According to section 53 read together with section 5(13), Interim Finance costs and costs incurred in raising such funds are part of the insolvency resolution process. According to section 53 (1) (a), interim financiers would have priority to recover the principal and interest even over the secured creditors. A security of this kind is considered super seniority status, and even if in the worst-case scenario, the company has to liquidate its assets at less than the fair value, the Interim Financer's principal and interest would be given priority. The super seniority status provides a cushion of safety & security to Interim Financiers and as it offers a better interest rate than any other secured investments like corporate FDs, bonds, etc. It is now becoming a very mature asset class for Interim Financers in foreign countries and is now even emerging in India. Individuals, companies, and NBFCs are also seeking such funding opportunities given the lucrative returns of this asset class, but the problem lies with the ticket size of interim financing. A significant number of investors are deprived of this opportunity because the ticket size for directly providing Interim Finance starts at Rs. 10 lakhs. As a solution to bridge this gap, LegalPay offers an Interim Finance investment opportunity, which allows investors to invest as little as Rs. 10,000, providing them with lucrative returns and assisting businesses to thrive through the funds received.
How is it benefiting the business ecosystem?
In this context, due to the fact that the company is in CIRP, the chances are that it will be unable to meet its capital requirements, which usually results in its demise. Thousands of companies go through it every year, which results in job losses, capital losses, and defaults on loans that harm the economy as a whole. A solution to this problem is provided by interim financiers who provide working capital to such companies to help them cover their costs, such as workmen's compensation, CIRP expenses, etc., and therefore helping businesses to remain as going-concern entities and as a result, protecting investors' capital. Also, there is no denying that India faces huge unemployment and that when a company goes bankrupt, an employee is the first to suffer. This is why Interim Finance serves as a lifeline to hundreds or even thousands of employees.
Conclusion
Interim Finance lenders will reap great returns on their investments, creditors won't suffer default losses, and employees will remain employed. Therefore, Interim Finance remains a win-win situation for all the stakeholders involved. Interim Finance, therefore, plays a vital role for companies that are going through CIRP and when investors who are willing to invest in such opportunities are able to allocate their resources to these companies, the economy will be able to flourish as a whole. In India, LegalPay is the biggest platform for investing in such opportunities which offer a completely secured gateway and offers the best returns. Furthermore, it will create an asset class that is destined to be one of the mainstream forms of investment and has a great future in India.
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