Third-party litigation financing is increasingly becoming a new tool in the hands of insolvent corporate resolution professionals (RPs), as they look for ways to fund operations until a new owner takes over the company or the assets are liquidated. .
In December, the RP of a Faridabad-based firm, which owns a shopping mall and has a debt of over Rs 300 crore, raised interim finance to run day-to-day operations while the company went through the corporate insolvency resolution process. was passing. (CIRP).
During the CIRP period, in order to keep the insolvent company a ‘moving concern’, the RP has to pay for professional fees, payments to workers and maintenance of plant and machinery. In most cases, such expenses are borne by the lenders.
However, when the lenders are not willing to allocate funds to run the bankrupt company, the RP is dependent on third parties for interim finance. When a resolution plan is approved or a company goes into liquidation, such costs, including the insolvency professional’s remuneration, take precedence over payments to secured financial creditors or any other lenders.
Kundan Sahi, CEO, Legalpay, said, “Funding to drive the bankruptcy process is known as debt in possession and is very popular in the hands of resolution professionals in the US and developed markets such as the UK, Australia and Canada.” provides such funding. We are targeting the mid-market segment, where the requirement of such funds is between Rs 10 lakh and Rs 5 crore.