2. Menu
1. Introduction/Background
2. Meaning
3. Methods of CDR
4. Pros
5. Cons
6. CDR System Evolution
- Objectives
- Structure
- Process
- Eligibility
7. Present Trends
8. Live Cases
9. Tax Impact
10. Conclusion
3. o Debt has fixed dates for,
a) interest to be paid and
b) principal amount to be repaid
o Inadequate cash flows
4. CDR is a method used by companies
With outstanding debt obligations
To reorganize the terms of debt agreements
In order to achieve some advantages.
“… it is a proactive step to avoid companies from
slipping into a mess from where it may become
difficult to make any recovery.”
5. Waiver of part of interest
Concessions in payment
Converting the un-serviced portions of interests into
term loans
Re-phasement of recovery schedules
Reduction in margins
Reassessment of credit facilities
7. Allows a business to gain control of its finances.
Improves credit rating
Help from third party
Satisfy creditors
8. Places a hold on new credit applications
Public image hampered
The CDR mechanism has not proved to be that
effective in redressing loan delinquency by big
borrowers
9. A Corporate Debt Restructuring System was evolved,
and detailed guidelines were issued by RBI on August
23, 2001 for implementation by banks.
The revised guidelines were issued on February 5,
2003.
www.cdrindia.org , is the official website .
10.
11. CDR
Structure
CDR Standing
forum & Core CDR Empowered CDR Cell
Group group
12. 1.
-> Standing Forum is a self empowered general body
-> Platform for creditors and borrowers
-> Core Group ensures that companies which have had
fraudulent dealings or approach the CDR system with
mala -fide intent are excluded.
13. 2.
-> Comprises of Executive Director level
representatives from the participatory institutions.
-> Decides on the preliminary reports to ascertain where
all restructuring is feasible
-> Hands over selected cases to the CDR Cell
-> The Standing Forum issues guidelines, the
Empowered Group executes them
14. -> This is responsible for assisting the Standing Forum
and the Empowered Group with all their tasks
-> Prepares the detailed rehabilitation plans for those
proposals which are selected by the Empowered
Group.
15. The steps through which a company reaches the
Restructuring Mode can be divided into the following
steps:
Step 1 : The Proposal
Step 2 : Preliminary Scrutiny
Step 3 : Detailed Review
Step 4 : The Restructuring Mode
16. a) Not applicable to accounts involving only one financial
institution or one bank.
b) Outstanding exposure of Rs.10 crore and above with
banks and institutions.
c) Loans can be considered for restructure only if
=> 75% of the creditors by value and
=> 60% of creditors (by number) agree to a
restructuring.
d) BIFR(Board for Industrial and Financial Reconstruction)
cases are not eligible
17. On November 25 2010, the Kingfisher board had approved
a debt recast plan under which they would convert some of
its debt into equity in its efforts to reduce the interest
burden and stem losses.
A consortium of 13 lenders to Kingfisher Airlines has taken
a 23.37 per cent stake in the airline as part of a debt
restructuring deal.
Kingfisher had agreed to convert Rs 1,355 crore worth loan
into shares
18. The company has nearly Rs 660 crores debt on its
books, of which Rs 460 crores will go for CDR
Rs 250 crore will be infused under the plan
approved by the corporate debt restructuring
(CDR) committee.
19. The amount of loan referred to CDR in:
First half of 2011-12 - Rs 34560 crore
First half of 2010-11 - Rs 5180 crore
The amount of loan referred was the highest amount
in the last eight years.
20. No. of Co's
50
No. of Co’s
40
30
47
20 34 31 35
10 10
0
Years
21. A ) INTEREST
Under Section 43B, Interest on Loan is allowed as
deduction, if such interest is actually paid.
Explanations 3C and 3D in section 43B clarifies
that, conversion of arrear interest into a fresh loan by a
bank cannot be considered as actual payment.
Hence would not be allowed as deduction in the tax
computation.
22. However, the manner in which the converted interest
will be allowed as deduction has been clarified in
Circular No.7/2006 dated 17th July, 2006.
The unpaid interest, whenever paid to the bank or
financial institution, will be in the nature of revenue
expenditure deserving deduction in the computation
of income.
The deduction will be allowed in the previous year in
which the converted interest is actually paid.
23. Waiver of
loan
Sec 2(24) (v d) & Sec 41 (1)
Sec 28 (iv)
Capital Revenue Not taxable
Not Taxable Taxable
24. HC
Decision
If Loan taken
If Loan taken Logitronic p for capital
for trading ltd vs CIT assets
Jubiliant Not
Treated Securities Pvt. Ltd treated
as vs CIT as
income
income
25. Banks / FIs should also disclose in their published annual
Balance Sheets, under "Notes on Accounts", the following
information in respect of corporate debt restructuring
undertaken during the year:
a. Total number of accounts ,total amount of loan assets
and the amount of sacrifice in the restructuring cases
under CDR. [(a) = (b) +(c) + (d)]
b. The number, amount and sacrifice in standard assets
subjected to CDR.
c. The number, amount and sacrifice in sub-standard assets
subjected to CDR.
d. The number, amount and sacrifice in doubtful assets
subjected to CDR.
26. One-stop forum for lenders and creditors to arrive at
mutually agreeable terms to secure their interests.
CDR has gained even more significance in a time of
global financial turmoil.
According to an official with large credit rating
agency.“The analysis shows that many restructured
cases turn into a bad assets over period”
A thrust area which needs a further look-in is the post-
restructuring phase which demands heavy monitoring.
