Corporate Debt Restructuring (CDR) Meaning
Corporate Debt Restructuring (“CDR”) mechanism is a voluntary non statutory mechanism under which financial institutions and banks come together to restructure the debt of companies facing financial difficulties due to internal or external factors, in order to provide timely support to such companies.
Corporate Debt Restructuring (CDR)
The intention behind the mechanism is to revive such companies and also safeguard the interests of the lending institutions and other stakeholders. The CDR mechanism is available to companies who enjoy credit facilities from more than one lending institution. The mechanism allows such institutions, to restructure the debt in a speedy and transparent manner for the benefit of all.
CDR standing Forum –The representative general body of banks and financial institutions participating in the CDR system. It is a self empowered body which lays down the policies and guidelines, such as the timeframe within which a unit shall become viable and the minimum level of promoter contribution. It also monitors the progress of corporate debt restructuring. The Forum also provides a platform for borrowers and creditors to amicably evolve policies for working out debt restructuring plans in the interest of everyone. The CDR Standing Forum comprises of Chairman and Managing Director, Industrial Development Bank of India Ltd; Chairman, State Bank of India; Managing Director and CEO, ICICI Bank Limited; Chairman, Indian Banks’ Association as well as Chairmen and Managing Directors of all banks and financial institutions participating as permanent members in the system. Most of the big financial institutions in India that lend money to companies are permanent participating members of the standing forum.
CDR Core Group – A CDR Core Group is carved out of the CDR Standing Forum to assist the Standing Forum in convening the meetings and taking decisions relating to policy, on behalf of the Standing Forum. The Core Group consists of Chief Executives of Industrial Development Bank of India Ltd., State Bank of India, ICICI Bank Ltd, Bank of Baroda, Bank of India, Punjab National Bank, Indian Banks’ Association and Deputy Chairman of Indian Banks’ Association representing foreign banks in India. It lays down policies and guidelines to be followed by the CDR Empowered Group and CDR Cell for debt restructuring, including policies regarding the operational difficulties faced by the CDR Empowered Group. It also prescribes time frame, and modalities for the enforcement of time frame for cases that are referred for the CDR mechanism.
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CDR Empowered Group– The individual cases of corporate debt restructuring are decided by the CDR Empowered Group. This group consists of Executive director level representatives of Industrial Development Bank of India Ltd., ICICI Bank Ltd. and State Bank of India as standing members, in addition to ED level representatives of financial institutions and banks who have an exposure to the concerned company. While standing members facilitate the conduct of the group’s meetings, voting is in proportion to the exposure of the creditors only. The CDR Empowered Group considers the preliminary report of all cases of requests of restructuring, submitted to it by the CDR Cell. After the Empowered Group decides that restructuring of the company is prima-facie feasible and the enterprise is potentially viable in terms of the policies and guidelines evolved by the Standing Forum, the detailed restructuring package is worked out by the CDR Cell in conjunction with the Lead Institution, which is the institution which has the highest exposure in the concerned company. The CDR Empowered Group examines the viability and rehabilitation potential of the company and approves the restructuring package within a specified time frame of 90 days, or at best within 180 days from the date on which it received the reference. The decision of the CDR Empowered Group is final and if it finds the restructuring package feasible and approves the scheme then the company is put on the restructuring mode. If restructuring is not found viable, the creditors are then free to take necessary steps for immediate recovery of dues and / or liquidation or winding up of the company, collectively or individually.
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CDR Cell – The CDR Cell makes the initial scrutiny about the health of the company and the role of corporate governance, and scrutinizes the of the proposals received from borrowers / creditors, by calling for proposed rehabilitation plan and other information and puts up the matter before the CDR Empowered Group within one month to decide if rehabilitation is prima facie feasible. If found feasible, the CDR Cell will proceed to prepare detailed Rehabilitation Plan with the help of creditors and, if necessary with experts to be engaged from outside.
Reference to CDR system
Reference to the CDR Cell may be made by (i) one or more creditor who have minimum 20% share in either the working capital or term finance of the company in respect of which the reference is made, or (ii) by the concerned corporate if such corporate is supported by a bank or financial institution having 20% stake as above.
Reference to the CDR Cell may be made by (i) one or more creditor who have minimum 20% share in either the working capital or term finance of the company in respect of which the reference is made, or (ii) by the concerned corporate if such corporate is supported by a bank or financial institution having 20% stake as above.
