The Insolvency and Bankruptcy Board of India has published a discussion paper on various changes it proposes to implement in the Insolvency and Bankruptcy Code (IBC), 2016.
Issuance of Simultaneous Resolution Plans Invitations
- One of the proposals envisions enabling simultaneous invitations for resolution plans for the business undergoing insolvency and its specific businesses or assets.
- It removes the existing provision that only after unsuccessful efforts to settle the entire corporate debtor, can an asset specific plans be pursued.
Complex Corporate Structures
- IBBI opines that in the current IBC structure, the existing framework considers each entity in isolation and disregards the dependency chains of the complex corporate structure.
- The amendments are to introduce a group insolvency framework, primarily for those sectors which hold business operations in interrelated setups, such as real estate and power generation.
Benefits from this Proposed Coordinated Approach
- There will be provisions in it for joint hearings, common RPs, information sharing protocols, and coordinated timelines across grouped companies.
- The insolvency process would thereby avail synergies and reduce inefficiencies, rising costs, and conflicts.
- One RP for the group entities would facilitate consolidated acquisition of assets in the stressed assets market.
Challenges through Recent Cases in Insolvency
- Case study of Videocon Industries Ltd. and Srei Infrastructure Finance Ltd. indicate how complex interconnectedness is with handling such group of entities.
- In 2019, SBI, through a petition to the NCLT Mumbai Bench, requested consolidation of 15 firms belonging to Videocon group, emphasizing the importance of a well defined framework for group insolvency.
Mandatory Reporting of Compliance
- The proposal suggests that RPs must submit all resolution plans to the Committee of Creditors (CoC), without filtration based on compliance.
- Along with this, RPs would also need to provide a detailed compliance report to the CoC, noting any noncompliance with IBC provisions.
Concerns and Criticisms
- Experts are concerned that increasing reliance on CoCs for decision making could lead to micromanagement, potentially undermining the RP’s authority.
- The proposal giving CoCs the power to review expenditure on goods and services may lead to over monitoring, diluting the RP’s role.
