The main objective of granting interim financing is to keep companies in insolvency under the legal support and guarantees provided by the Insolvency and Bankruptcy Code, 2016.
LegalPay, a Delhi-based tech-driven start-up that invests in commercial litigation and provides interim financing, has closed an interim financing transaction for an undisclosed amount at Bengaluru and Ranchi Hospital – Yashomati Hospitals Private Limited – in the process of insolvency. The transaction was completed in a record time of less than three weeks.
Interim Finance is a 6 to 12 month super-secure short-term loan granted to companies in insolvency. Interim financing is analogous to providing oxygen or SOS to the debtor company and is used to pay the operational costs of immediate needs such as payments to professionals, workers, security personnel, etc. The main objective of the provision of interim financing is to keep companies in the event of insolvency running under the legal support and guarantees provided by the Insolvency and Bankruptcy Code, 2016.
Ravindra Beleyur, appointed Resolution Professional for Yashomati Hospitals Private Limited, while sharing her experience working with LegalPay said: âMy team and I thank the LegalPay team for their very responsive approach. We never thought and / or thought that the Term Sheet could be finalized by an interim finance provider in less than 12 days from the initial email. This is the level of rapid response required for any interim funding for any CIRP. We are complementing the LegalPay team to maintain this speed for all time-limited CIRPs, which is an absolute need.
This segment is dominated by private equity and ARC giants such as Edelweiss, KKR and Eight Capital, which do high-priced transactions. LegalPay targets mid-sized businesses including insolvency MSMEs where the bridge financing requirement ranges from INR 10 lakh to INR 5 crore.
Based on official reports and data released by IBBI, interim financing requirements for insolvent companies range from an amount as small as 10 lakh INR, to 800 crore INR. Some industry experts have estimated that the general interim funding requirement ranges between INR 50 crores and INR 200 crores.
Kundan Shahi, Founder and CEO of LegalPay said, âWe are proud to help revive a hospital, especially in the midst of a pandemic. We go through a very strict due diligence and risk assessment process before making a decision. The number of admitted CIRPs is expected to increase specifically after the introduction of a pre-defined insolvency process, which is a much faster 120-day process. We see the insolvency market as a very strong anchor for us and look forward to providing the best possible solutions to organize the market and make it efficient.
Interim financings, including accrued interest, were given higher priority status than debts owed to all other IBC creditors. It is part of the cost of resolving the company’s insolvency and takes precedence over payment to other creditors if the resolution plan is approved or the liquidation process is initiated. Many lenders now view bridge financing as an investment opportunity, as the interest rates on these loans are very competitive and lucrative in the market. Even, several provisions of the IBC guarantee and secure the interests of creditors and investors.