Centre is likely to table the much-awaited Insolvency and Bankruptcy Code (IBC) Amendment Bill during the monsoon session of the Parliament and could send it for Cabinet’s approval by the end of April, two senior government officials have told Moneycontrol on April 11.
“We’re ready with the Bill, by this month’s end, we will send it to the Cabinet for approval,” one official from the Ministry of Corporate Affairs said.
The IBC Amendment Bill is likely to introduce the group insolvency and cross-border insolvency, as well as the creditor-led resolution process (CLRP) framework, to enable out-of-court settlement for large companies, the officials said.
Group insolvency refers to the clubbing up of assets and liabilities of companies in a corporate group and undertaking resolution proceedings simultaneously. Cross-border insolvency, on the other hand, helps in dealing with a situation when the insolvent debtor has assets and creditors in multiple countries.
Insolvency and Bankruptcy Board of India (IBBI) Chairman Ravi Mittal had written in a report earlier that in the present environment, it is common for businesses to be conducted through groups of companies, which led to instances where financial position of one company impacts other companies of the group.
“Though the Code does not explicitly provide for dealing with group insolvency cases, the Adjudicating Authority (AA), or the NCLT, at several occasions, has attempted to consolidate the insolvency resolution processes of such companies because of the higher possibility of revival and better value realization,” Mittal had said.
For instance, in the insolvency resolution of corporate debtors (CDs) such as Videocon, Era infrastructure, Lanco, Educomp, Amtek, Jaypee, Adel Landmarks etc, special issues arose from their interconnections with other group companies. “This highlighted the need to examine the desirability and feasibility of having a framework for insolvency resolution of group companies,” Mittal had said.
Former IBBI Member Sudhaker Shukla had earlier stated that group insolvency norms are needed for effective implementation of cross-border insolvency rules and thus both are linked. “The government has realised that without group insolvency the aspect of cross-border insolvency will not work at all,” Shukla had said.
Three significant recent cases highlighting cross-border insolvency issues are those of Essar Steel, Videocon, and Jet Airways. Jet Airways, in particular, had international operations, leading to parallel bankruptcy proceedings in the Netherlands. However, due to the lack of a formal legal framework in India for recognizing foreign insolvency proceedings, the National Company Law Tribunal (NCLT) had no legal grounds to acknowledge or coordinate with the Dutch proceedings.
This gap resulted in inefficiencies and the risk of asset dissipation, underscoring the urgent need for a well-defined cross-border insolvency regime in India, say experts.
The CLRP, meanwhile, would be similar to the pre-packaged scheme (for MSMEs), and will be initiated by the financial creditors, after the occurrence of default by the corporate debtor (CD), but with minimum interference of the adjudicating authority (AA).
The bill may also remove interim mortarium provisions under the IBC for personal guarantor’s assets, introduce project-wise resolution for real estate companies to ring-fence unaffected projects, and implement a digital case management system to facilitate efficient handling of proceedings, the officials said.
Additionally, a revised waterfall mechanism for distributing resolution proceeds and the decriminalisation of certain offences are being considered to promote ease of doing business.
Expert Take
Since IBC’s introduction in 2016, the legislative and judicial landscape has evolved drastically with contemporary issues inter alia including corporate insolvency resolution process (CIRPs) consolidation, the delay in resolution, cross border and group insolvency emerging in its wake. “Such issues while dealt by the judiciary on a case-to-case basis, require the statutory seal of the legislature,” said Siddharth Srivastava, partner, Khaitan & Co.
“The Code also needs to be amended and updated to keep it in line with the best international practices so that the same may act as a comfort to foreign investors and corporates, who may then proceed to choose India for their long-term investment,” Srivastava added.
Deepika Kumari, partner, King Stubb & Kasiva, said, “By easing the load on the NCLTs through streamlined processes like CLRP and adopting tailored approaches for complex sectors such as real estate, the amendments would ensure timely and effective resolutions.”
Piyush Agarwal, partner, AQUILAW, who deals with IBC cases said that the amendment should mandate the submission of a ‘Statement of Affairs’ by the Corporate Debtor (CD), which would contain essential information such as employee details and financial statements.
“This requirement would reduce critical information gaps, enabling the Resolution Professional (RP) and the Committee of Creditors (CoC) to assess the situation accurately and make faster decisions,” Agarwal added.
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