How companies will change hands to the next generation

Many companies are battling insolvency proceedings, and a lot of them will see either promoters giving up or being taken over. In June 2017, the Reserve Bank of India referred 12 accounts, identified as wilful defaulters, to the insolvency process under the Insolvency and Bankruptcy Code (IBC).

Later in the year, it identified 28 more accounts as wilful defaulters. In November, through an ordinance, the Centre tweaked the IBC to debar wilful defaulters and those with NPA accounts from bidding for their own assets in auctions to recover defaulted loans.

The 180-day limit for resolving cases mean a lot of resolutions/auctions will happen in 2018. The big names on the list include Essar Steel, Bhushan Steel, JP Infra and ABG Shipyard. A lot of excitement is around steel companies as big names like Tata Steel, ArcelorMittal and Vedanta are likely to put in bids.


There are 4,300 insolvency proceedings at the National Company Law Tribunal (NCLT), under the corporate insolvency resolution process, filed between May 2016, when the IBC came into force, and November 2017.

Insolvency apart, there is also a growing tendency among promoter families where the next generation is not ready to take over and run their parents’ businesses. They would rather go into a growth business that they can scale up faster. Some may not be interested in business at all. The only option here is to organise the family investments into a family office and induct professionals to run the businesses. Either way, watch out for changes.

IN THE DOCK
Twelve companies are most likely to see a management change under IBC in 2018. These were the first ones named by the RBI as wilful defaulters and referred to the NCLT: Essar Steel, Bhushan Steel, Bhushan Power, Alok Industries, Electrosteel Steels, JP Infra, Lanco Infratech, Monnet Ispat, Jyoti Structures, ABG Shipyard, Amtek Auto and Era Infra.


When the Next Gen Says No
Many young scions do not want to manage their parents’ businesses. Here’s what the older generation can do:

Set aside some money, say, `100 crore, and help the next generation buy businesses of their choice Hive off a part of the business for a scion and leave the main business to be run by professionals.

Create a family office to manage the family’s investments and let interested scions run the family office, without interfering in the main business.

Continue running the business while the scions can sell out when they inherit it