Group Insolvency: Moving from “Entity” to “Enterprise”

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-Sikha Bansal (resolution@vinodkothari.com)

 

Recently, the Working Group led by Shri U.K. Sinha, submitted its Report on group insolvency, recommending a complete framework to facilitate insolvency resolution and liquidation of corporate debtors in a “group”. The Report was submitted by the working group on 23.09.2019.

See our presentation here on various aspects of group insolvency proceedings as suggested by the Working Group, and includes discussion on procedural coordination versus substantive consolidation along with case laws and case studies.

Case Update: SC extended the CIRP by exercising Article 142 of the Constitution

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-Priya Udita

(resolution@vinodkothari.com)

The Supreme Court (SC) in the case of Jaiprakash Associate Ltd. & Anr. v. IDBI Bank Ltd. & Anr. dealt with 2 issues. Firstly, whether the National Company Law Tribunal (NCLT) or National Company Law Appellate Tribunal (NCLAT) can exclude any period from the statutory period in exercise of inherent powers sans any express provision in the Insolvency and Bankruptcy Code (I&B Code) in that regard. Secondly, whether the bidders can submit revised resolution plan after they were originally rejected by Committee of Creditors (CoC).

 

Dealing with the first issue, the SC in its order dated November 6, 2019 held that an extraordinary situation had arisen because of the constant experimentation which went about at different level due to lack of clarity on matters crucial to the decision making process of CoC. Besides that, the SC held that the case on hand is a classic example of how the entire process got embroiled in litigation initially before court and adjudicating authorities due to confusion or lack of clarity in respect of foundational processes to be followed by the CoC. Depending upon the uniqueness and unanimity of the stakeholders and resolution applicant to eschew the liquidation of corporate debtor, the SC by exercising its power under Article 142 of the constitution reckons 90 days extended period from the date of this order instead of the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019.

With regard to second issue, the SC relied on the sub clause (7) of Regulation 36B inserted with effect from 4th July, 2018, dealing with the request for resolution plans. It postulates that the resolution professional may, with the approval of the CoC, reissue request for resolution plans, if the resolution plans received in response to earlier request are not satisfactory, subject to the condition that the request is made to all prospective resolution applicants in the final list. Consequently, applying the principle underlying Regulation 36B(7), the SC found it appropriate to permit the interim resolution applicant to reissue request for resolution plans to the two bidders and/or to call upon them to submit revised resolution plans, which can be then placed before the CoC for its due consideration.

However, the SC has clarified that this order is issued in an exceptional case and it will not be construed as a precedent. Further, the SC made it clear that this order does not answers to the question of law as to whether NCLT or NCLAT has the power to issue direction or order inconsistent with the statutory timelines and stipulations specified in the I&B Code or regulations.

Though the SC has extended the CIRP period in an exceptional case, it is still not sufficient to complete the process within the stipulated time period as there are constant amendments being done for the effective implementation of the I&B Code. The NCLT/NCLAT is burdened with the application for clarification on the various procedures or regulation while the time for resolution flies. There are numerous cases pending before adjudicating authorities whose stipulated time period for the resolution has been surpassed.

Timely Realisation of Assets by Secured Creditors- IBBI’s Discussion Paper on Liquidation Process Regulations

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-Megha Mittal

(resolution@vinodkothari.com) 

The Insolvency and Bankruptcy Board of India (“IBBI”/ “Board”) has invited comments on its Discussion Paper on Corporate Liquidation Process[1], dated 03.11.2019 (“Discussion Paper”), which essentially deals with two issues which have been the focal point of contrasting opinions as well as judicial interpretation at various instances, i.e. (a) Relinquishment of Security Interest in Corporate Liquidation Process; and (b) Applicability of section 29A of the Code to Compromise and Arrangement.

In this article, the author has delved into the said issues based on the problem statement presented by the Board, and has also attempted to analyse the propose amendments in the Insolvency and Bankruptcy Code, 2016 (“Code”) w.r.t. relinquishment of security interest in corporate liquidation.

We shall discuss the applicability of section 29A of the Code to Compromise and Arrangement in a separate article.

Read more →

Schemes under Section 230 with a pinch of section 29A – Is it the final recipe?

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-Sikha Bansal (resolution@vinodkothari.com)

Note: This article is in continuation of/an addition to our earlier article wherein the author discussed various aspects pertaining to schemes of arrangement in liquidation under section 230 of the Companies Act, 2013 read with various provisions of the Insolvency and Bankruptcy Code, 2016. The author has described various factors and principles which the judiciary may consider while sanctioning a scheme of arrangement for companies in liquidation, how a scheme is different from a resolution plan or a going concern sale, what constitutes ‘class’ in the context, whether the waterfall under section 53 will apply to such schemes, etc. The author also pointed out the lack of clarity as to applicability or inapplicability of section 29A on such schemes. However, very recently, NCLAT has clarified that persons ineligible under section 29A are not qualified to propose a scheme during liquidation. This Part discusses this ruling and ponders upon some questions which still remain open-ended/unanswered.

The conundrum as to whether section 29A of the Insolvency and Bankruptcy Code, 2016 (‘Code’) will apply to schemes under section 230 of the Companies Act, 2013 (‘Companies Act’) has been put to rest, at least for the time being, by a recent ruling of the National Company Law Appellate Tribunal (‘NCLAT’). In  Jindal Steel and Power Limited v. Arun Kumar Jagatramka & Gujarat NRE Coke Limited (Company Appeal (AT) No. 221 of 2018), vide order dated 24.10.2019, NCLAT held, while a scheme under section 230 is maintainable for companies in liquidation under the Code, the same is not maintainable at the instance of a person ineligible under section 29A of the Code. The NCLAT relied on the observation of the Hon’ble Supreme Court in Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors., WP No. 99 of 2018, that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation.

Read more →

Resurrecting the Dead- A discussion around schemes of arrangement in liquidation

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-Sikha Bansal

(resolution@vinodkothari.com)

In India, the provisions for schemes of compromises/arrangements have formed a part of the Indian Companies Act, 1913 and then the successors – the Companies Act, 1956/2013 following the English law.

After Sick Industrial Companies (Special Provisions) Act, 1985 (‘SICA’) was enacted, it was not possible to invoke the provisions relating to the schemes of compromise/arrangement for companies under BIFR[1].  However, the Insolvency and Bankruptcy Code, 2016 (‘Code’) made amendments[2] in section 230 of the Companies Act, 2013 so as to include a liquidator appointed under the Code as eligible to propose a scheme under that section.  Later, the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (‘Regulations’) were amended[3] to facilitate schemes under section 230 of the Companies Act, 2013. Given that the company gets a fair chance of resolution under the Code before being pushed to liquidation, the window for completion of scheme has been provided only for the initial duration of 90 days from the liquidation order. Read more →

Proposed Group Insolvency Framework in India

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[A brief discussion on the Report of the Working Group on Group Insolvency]

– Priya Udita

(resolution@vinodkothari.com)

 

With group structures holding prominence in business landscape of India, there has been a need to frame a holistic group insolvency framework. There are cases where the stakeholders may maximise their interests and the possibility of revival of companies may be higher, if companies in a group are resolved together. However, the Insolvency and Bankruptcy Code, 2016 (‘IBC’) does not envisage a framework to either synchronise insolvency proceedings of different companies in a group or to resolve their insolvencies together. Recently, the need was realised in the insolvency resolution of some corporate debtors such as Videocon, Era Infrastructure, Lanco, Educomp, Amtek, Adel, Jaypee and Aircel, where special issues arose from their interconnection with other group companies. In some of these cases, the Adjudicating Authority under the Code as well as the Supreme Court, have passed orders to partially ameliorate such issues. This highlighted the need to examine the desirability and feasibility of having a group insolvency framework. Read more →

Home-buyers provisions in IBC: Putting square peg in round holes?

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 Sikha Bansal

(resolution@vinodkothari.com)

The ruling of the Apex Court in Pioneer Urban Land and Infrastructure vs. Union of India[1], comes as a breather for home-buyers (all and sundry), upholding the constitutional validity of the amendments brought out in section 5(8) of the Insolvency and Bankruptcy Code, 2016 (“IBC”).

Section 5(8) defines ‘financial debt’ as a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes “any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of borrowing” [clause (f)]. An explanation was inserted[2], wherein “any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing”. Read more →

Amendment in Liquidation Regulations: Salient Features and Analysis

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By Sikha Bansal 

(resolution@vinodkothari.com)

The Insolvency and Bankruptcy Board of India has notified the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019 (“Amendment Regulations”) and introduced major changes in the existing law. Majority of the amendments are curative, therefore, intended to resolve practical difficulties arising in liquidation proceedings as have been experienced so far. Read more →

Liquidation Regulations: Wide-ranging, far-reaching changes to make liquidations faster, smoother

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Vinod Kothari

(resolution@vinodkothari.com)

The attention that reforms in liquidation regulations has received, relative to what has gone in case of resolution, is far lesser than deserved, given the percentage of the resolution cases that slip into liquidation. Most of the major liquidations initiated 12 to 18 months ago are either making a very tardy progress, or are stuck into dead-ends. There were several needed changes in the Liquidation Regulations, and it is so very heartening to see the IBBI announce the amendments vide the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019, concluding a consultation process that began almost 8-9 months ago. The best part is, the amendments have incorporated most of the useful suggestions that were made either in the roundtable meetings held across the country, several comments and write-ups[1], or subsequently in response to the Discussion Paper. Read more →

The Insolvency Amendment Bill, 2019: Highlights

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By Sikha Bansal

(resolution@vinodkothari.com)

The Insolvency and Bankruptcy Code (Amendment) Bill, 2019 has been introduced in Rajya Sabha and will have a game-changing impact on the ongoing insolvency proceedings as well as the future of the Insolvency and Bankruptcy Code, 2016. Read more →