LegalPay, a litigation financing start-up that invests in commercial litigations and provides interim finance, has closed a transaction of interim finance of an undisclosed amount to the Bengaluru and Ranchi-based hospital, Yashomati Hospitals Private Limited, which is undergoing insolvency.
Interim finance is a short-term, super-secured lending for six to 12 months granted to companies undergoing insolvency. The transaction was completed in a record time of less than three weeks.
Interim finance is crucial for a debtor since it is used to meet the operational costs of immediate needs such as payments to professionals, workers, and security personnel among other things. The main objective of interim finance is to keep the companies under insolvency running under the legal backing and safeguards provided by the Insolvency and Bankruptcy Code, 2016 (IBC).
Incidentally, the segment of interim finance is dominated by private equity and asset reconstruction companies or ARCs that typically focus on high-ticket transactions.
LegalPay, meanwhile, is targeting mid-market companies including the Micro, Small, and Medium Enterprises (MSMEs) undergoing insolvencies wherein the requirement of interim finance ranges from Rs 10 lakh to Rs 5 crore.
Data from the Insolvency and Bankruptcy Board of India (IBBI) shows that the interim financing requirements for companies undergoing insolvencies vary between Rs 10 lakh to as much as Rs 800 crore. Industry estimates have pegged such requirements in a range of Rs 50 crore to Rs 200 crore.
More importantly, interim finance, including interests accrued, has been given superior priority status over debts due to all other creditors under the IBC. It is a part of the corporate insolvency resolution cost and has priority over payment to other creditors if the resolution plan is approved or if the liquidation process is commenced.
“We follow a very stringent due diligence and risk assessment process before arriving at a decision. We see insolvency market as a very strong foothold for us and look forward to provide best possible solutions to organise the market and make it efficient” said Kundan Shahi, Founder & CEO of LegalPay.