LIQUIDATION BEFORE RESOLUTION?

By Richa Saraf (resolution@vinodkothari.com)

A survey by World Bank[1] pointed out that it took 10 years on an average to wind up/ liquidate a company in India as compared to 1 to 6 years in other countries. Such lengthy time-frames are detrimental to the interest of all stakeholders. The process should be time-bound, aimed at maximizing the chances of preserving value for the stakeholders as well as the economy as a whole.

Report of the Expert Committee on Company Law– “Restructuring and Liquidation”[2] noted that the Insolvency law should strike a balance between rehabilitation and liquidation. It should provide an opportunity for genuine effort to explore restructuring/ rehabilitation of potentially viable businesses with consensus of stake holders reasonably arrived at. Where revival/ rehabilitation is demonstrated as not being feasible, winding up should be resorted to. Where circumstances justify, the process should allow for easy conversion of proceedings from one procedure to another. Read more

Resolution Plans to Subsume Statutory Dues?

By Shikha Bansal & Richa Saraf (resolution@vinodkothari.com)

The Insolvency and Bankruptcy Code, 2016 facilitates drawing up resolution plans for corporate debtors who has defaulted in making payment to its creditors. The resolution plan is approved by a committee of creditors consisting of a class of creditors (called financial creditors) of the corporate debtor. The resolution plan, once approved and sanctioned by the adjudicating authority, becomes binding on all the stakeholders of the company including dissenting financial creditors and operational creditors. As such, it assumes the nature of a contract framed under a statute. However, the question before us is whether a class of creditors can approve a resolution plan which seeks to extinguish statutory liabilities of the corporate debtor. Read more