SARFAESI ACT

The key parties involved in stressed account funding include:  

  1. Borrower:

   – The distressed company or account seeking financial support.  

  1. Lender:

   – Banks, financial institutions, or non-banking financial companies (NBFCs) provide loans or credit.  

  1. Investors:

   – Private equity firms, venture capital funds, or special situation funds investing in distressed assets.  

  1. Asset Reconstruction Companies (ARCs):

   – Specialized entities acquiring and resolving non-performing assets (NPAs).  

  1. Regulators:

   – Authorities like central banks or agencies (e.g., SEBI, RBI in India) ensuring compliance and oversight.

  1. Turnaround Professionals: 

   – Consultants, advisors, or management experts facilitating business recovery.  

  1. Legal Advisors:

   – Lawyers ensuring compliance with bankruptcy laws, loan agreements, and restructuring terms.  

  1. Creditors:

   – Other lenders, suppliers, or stakeholders owed money by the distressed company.  

  1. Resolution Professionals:

   – Appointed to manage insolvency proceedings under legal frameworks like the Insolvency and Bankruptcy Code (IBC).  

  1. Shareholders:

   – Existing owners or stakeholders affected by the restructuring or funding process.

The SARFAESI Act is an Indian legislation enacted in 2002 to enable banks and financial institutions to recover non-performing assets (NPAs) efficiently without the intervention of courts. It provides a legal framework for the securitization of financial assets and the enforcement of security interests in default cases.  

Key Features of the SARFAESI Act

  1. Scope and Applicability:

   – Applies to banks and financial institutions for recovering loans classified as NPAs.  

   – Not applicable for loans below ₹1,00,000 or where the unpaid amount is less than 20% of the principal.  

  1. Securitization:

   – Allows financial institutions to convert loans and assets into marketable securities.  

  1. Asset Reconstruction:

   – Enables the creation of Asset Reconstruction Companies (ARCs) to acquire and manage distressed assets.  

  1. Enforcement of Security Interests:

   – Empowers creditors to take possession of secured assets without court intervention in case of default.  

  1. Auctioning of Assets:

   – Banks can auction the seized assets to recover outstanding dues.  

  1. Debts Recovery Tribunal (DRT):

   – Provides a platform for borrowers to appeal against actions taken under the Act.  

Process under the SARFAESI Act 

  1. Issuance of Demand Notice:

   – A 60-day notice is sent to the borrower demanding repayment of dues.  

  1. Possession of Assets:

   – If the borrower fails to comply, the secured creditor can take possession of the asset.  

  1. Auction of Assets:

   – The asset is auctioned to recover the outstanding amount.  

Benefits of the SARFAESI Act 

– Speeds up the recovery process of NPAs.  

– Reduces the burden on courts by enabling creditors to recover debts directly.  

– Promotes financial discipline among borrowers.  

 Offering services in stressed account funding:

  1. Debt Restructuring: Modifying loan terms for easier repayment.  
  2. Bridge Financing: Short-term liquidity for immediate needs.  
  3. Distressed Asset Investments: Capital injection or NPA acquisition.  
  4. Factoring: Unlocking cash through invoice discounting.  
  5. Turnaround Management: Operational and financial restructuring.  
  6. Mezzanine Financing: Hybrid funding with debt-equity options.  
  7. 7. Asset-Based Lending: Loans secured by company assets.  
  8. Special Situation Funds: Targeted funding for recovery or M&A.  
  9. Bankruptcy Exit Financing: Capital for post-bankruptcy operations.