Corporate Debt Restructuring (CDR)

Mechanism in India
Meaning of CDR
Refers to restructuring of the outstanding debts of a
company when it find its difficult to repay the same.
Comprises of provisions of moratorium, spreading the
obligations over a longer period of time, conversion of part
of the debt into equity or preference capital or ZRDs,
reduction of interest rate, payments out of promoters
contribution / sale of surplus assets etc.
Introduction in India
Introduced in 2001
Based on systems prevalent in UK, Thailand, Korea, Malaysia
etc.
Voluntary, non-statutory system
Allows a distressed company with two or more lenders with
debt of more than Rs. 10 Crore to restructure
Consent of lenders representing 75% or more in value and
60% or more by number
Based on Debtor Creditor Agreement (DCA) and Inter
Creditor Agreement (ICA)
Objective

To ensure timely and transparent mechanism for

restructuring the corporate debts of viable entities facing
problems, outside the purview of BIFR, DRT and other legal
proceedings, for the benefit of all concerned.
Scope of CDR

Organizational framework institutionalize for speedy disposal

of restructuring proposals
Available to all borrowers engaged in any type of activity
subject to the following conditions :
a) The borrower enjoys credit facilities from more than one
bank / FI under multiple banking / syndication / consortium
system of lending.
b) The total outstanding (fund-based and non-fund based)
exposure is Rs.10 crore or above.
Structure of CDR system
CDR system is having three tier structure :
CDR Standing Forum and its Core Group
CDR Empowered Group
CDR Cell
CDR Standing Forum and its Core
Group
CDR Standing forum is Representative general body of all
financial institutions and banks participating in CDR system.
It comprises of CMD, IDBI; Chairman, SBI; MD & CEO,
ICICI Bank; Chairman, Indian Banks Association as well as
Chairmen and Managing Directors of all Banks and FIs
participating as permanent members in the system.
 Official platform for both the creditors and borrowers (by
consultation) to amicably and collectively evolve policies and
guidelines.
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 CDR Core Group lays down the policies and guidelines
to be followed by the CDR Empowered Group and CDR
Cell
CDR Empowered Group

Consists of ED level representatives of IDBI , ICICI and SBI

as standing members, in addition to ED level representatives
of FIs and Banks who have an exposure to the concerned
company.
Considers the preliminary report of all cases of requests for
restructuring, submitted to it by the CDR Cell.
 Decides as to whether the restructuring of the company is
prima-facie feasible and the enterprise is potentially viable in
terms of the policies and guidelines evolved by Standing
Forum
If found feasible / viable by CDR-EG detailed restructuring
package is to be prepared by CDR cell
If restructuring of debt is found to be viable and feasible and
approved by the Empowered Group, the company would be
put on the restructuring mode
 If not found viable, the creditors would be free to take
necessary steps for immediate recovery of dues
The decisions of the CDR Empowered Group are final
CDR CELL
The CDR Standing Forum and the CDR Empowered Group
will be assisted by a CDR Cell in all their functions
All references for CDR by creditors or borrowers will be
made to the CDR Cell.
 Will make the initial scrutiny of the proposals received from
borrowers / creditors, by calling for proposed rehabilitation
plan and other information
Will put up the matter before the CDR Empowered Group,
within one month to decide whether rehabilitation is prima
facie feasible.
 Will prepare the restructuring plan in terms of the general
policies and guidelines approved by the CDR Standing Forum
and place for consideration of the Empowered Group within
30 days for decision.
The Empowered Group can approve or suggest modifications
but ensure that a final decision is taken within a total period
of 90 days.
 For sufficient reasons the period can be extended up to a
maximum of 180 days from the date of reference to the CDR
Cell
Eligibility criteria

Covers only :
Multiple banking accounts / syndication / consortium
accounts
Of corporate borrowers
Engaged in any type of activity
With outstanding fund-based and non-fund based exposure of
Rs.10 Crore and above by banks and institutions.
 The initiative to resolve the case under the CDR system is
taken by at least 75% of the creditors (by value) and 60% of
creditors (by number).
Category-1
Applicable only to accounts classified as 'standard' and 'sub-
standard'.
The account should be classified as 'standard' and 'sub-
standard by 90% of the creditors (By value)
Ineligible Cases
BIFR cases are not eligible for restructuring under the CDR
system. However, large value BIFR cases may be eligible if
specifically recommended by the CDR Core Group.
Corporates indulging in frauds and malfeasance even in a
single bank will continue to remain ineligible for
restructuring
Willful defaulters, who can rectify the willful default may be
allowed with the approval of the CDR Core Group
Reference to CDR system

Reference can be triggered by :

I. any one or more of the creditors who have minimum 20%
share in either working capital or term finance, or
II. by the concerned corporate, if supported by a bank or
financial institution having stake as in (i) above.
Legal Basis to CDR

Is provided by :
The Debtor Creditor Agreement (DCA) and
The Inter-Creditor Agreement (ICA).
Inter-Creditor Agreement (ICA).
Entered into by all banks /FIs in the CDR System
Makes the restructuring legally binding on all
participating Banks and FIs with necessary
enforcement and penal provisions, if 75% of
creditors (by value) and 60% (in numbers) agree
to the same.
The Debtor Creditor Agreement
(DCA)
Debtors and creditors are required to execute the
DCA.
Has a legally binding stand still clause binding
for 90/180 days whereby both the debtor and
creditor(s) agree to commit themselves not to take
recourse to any legal action during the period
Stand Still not to apply to Criminal Action
Sharing of Additional finance

Additional finance, if any, is to be provided by all creditors of

a 'standard or 'substandard account' irrespective of whether
they are working capital or term creditors, on a pro-rata
basis.
 The providers of additional finance, whether existing
creditors or new creditors, shall have a preferential claim, to
be worked out under the restructuring package, over the
providers of existing finance
Exit Option- Creditor outside the
minimum 75 per cent & 60 per cent
who for any internal reasons does not wish to commit
additional finance will have an option to:
(a) arrange for its share of additional finance to be provided by
a new or existing creditor,
(b) agree to the deferment of the first year's interest due to it
after the CDR package becomes effective.
 The first year's deferred interest as mentioned above,
without compounding, will be payable along with the last
installment of the principal due to the creditor.
Exit option- Creditor within minimum
75% and 60%
Available provided the purchaser agrees to abide by approved
restructuring package by the Empowered Group.
The exiting lenders may be allowed to continue with their
existing level of exposure to the borrower provided they tie
up with either the existing lenders or fresh lenders taking up
their share of additional finance.
Category 2 CDR System
Cases where the accounts have been classified as 'doubtful' in
the books of creditors.
If a minimum of 75% of creditors (by value) and 60%
creditors (by number) satisfy themselves of the viability of
the account
All the other features of the CDR system as applicable to the
First Category will also be applicable to cases restructured
under the Second Category.
Incorporation of 'right to recompense'
clause
All CDR approved packages must incorporate creditors' right
to accelerate repayment and borrowers' right to pre-pay.
Should be based on certain performance criteria to be
decided by the Standing Forum.