Concerns on Going Concern: Proposed amendments in Liquidation Regulations need relook
/0 Comments/in Insolvency and Bankruptcy /by Vinod Kothari Consultants– Vinod Kothari
The possibility of going concern sales in liquidations, visualised by Adjudicating Authorities in several early cases, got a regulatory recognition vide IBBI (Liquidation Process) (Second Amendment) Regulations, 2018. Since then, there has been a lot of work on how exactly will going concern sale work in liquidation. Our previous write- ups on going concern sale are Liquidation sale as going concern: The concern is dead, long live the concern! and Enabling Going Concern Sale in Liquidation. IBBI itself has organised several meetings around this; there have been meetings organised by other groups such as Society of Insolvency Practitioners of India (SIPI).
Recently, the IBBI released a draft of the amendments to the Liquidation Regulations[1], which includes regulatory amendments pertaining to going concern sale as well.
This Note highlights the need to have a relook at these proposed amendments, in context of going concern sale.
Proposed Amendment in the Liquidation Regulations
/0 Comments/in Insolvency and Bankruptcy /by Vinod Kothari ConsultantsSchemes of Arrangement in Liquidation: A New Ray of Hope?
/0 Comments/in Corporate Laws, Insolvency and Bankruptcy /by Vinod Kothari Consultants-By Vinod Kothari
(resolution@vindokothari.com)
The recent rulings of appellate judicial and quasi-judicial authorities in India permitting the pursuit of schemes of arrangement even after initiation of liquidation proceedings may have sounded surprising to many. However, the history of schemes of compromise and arrangement is indeed replete with examples of such arrangements seeking to bail out an entity that is otherwise doomed to be liquidated. Since India stands out in the world, having enacted section 29A of the Insolvency and Bankruptcy Code, 2016, which disqualifies a promoter from submitting resolution plans or acquiring the assets of the entity in liquidation, the issue causing a lot of debate is – how does the possibility of a scheme of arrangement co-exist with this principle of promoter disqualification? Or, if the promoters, disqualified from either heading a resolution exercise or acquiring assets in liquidation, can find a surrogate route in schemes of arrangement, is there a potential of negating the very objective of insertion of section 29A? Read more →
Scale-based liquidator’s fees: Issues and answers
/6 Comments/in Insolvency and Bankruptcy /by Vinod Kothari Consultants-By Resolution Team, Vinod Kothari & Company
(resolution@vinodkothari.com )
Liquidators under the Liquidation Regulations may be paid either based on a fee fixed by the Committee of Creditors [Reg 4 (2)], or where the Committee has not fixed such fees, based on the scale provided in Reg 4 (3) [“scale-based” or “scalar” fees]. There are several points that arise in respect of computation of liquidator’s fees under Reg 4 (3). What makes the issue very sensitive is that the liquidator is paying himself out of the liquidation estate, and therefore, he is treading the very delicate issue of conflict where his duties as a fiduciary might be conflicting with his claim to the fees. Like in every case where a person responsible in a fiduciary capacity is paying to himself, the liquidator has to be extremely careful, so as to avoid even the farthest chance of an allegation of self-dealing. Read more →
Entity versus Enterprise: Dealing with Insolvency of Corporate Groups
/0 Comments/in Corporate Laws, Insolvency and Bankruptcy /by Vinod Kothari ConsultantsBy Vinod Kothari & Sikha Bansal
(resolve@vinodkothari.com)
Present-day businesses sweep across multiple entities, such that the “enterprise” consisting of multiple entities, often in multiple jurisdictions, is referred to as a “group”. While accounting standards and securities market regulators have moved on to the concept of “business groups”, the ghost of the 19th century ruling in Salomon v. Salomon & Co continues to hover over corporate laws and, consequentially, over insolvency laws too. Read more →
Post-Admission Withdrawal of Insolvency Proceedings- Balancing Between Creditors’ Supremacy and Adjudicators’ Discretion
/1 Comment/in Insolvency and Bankruptcy /by Vinod Kothari Consultants-By Richa Saraf
(richa@vinodkothari.com); (resolve@vinodkothari.com)
Initiation of insolvency proceedings, whether by creditors or by the debtor himself, may be compared with the Brahmastra: as the latter cannot be retracted without killing the target, the former, once admitted, cannot be withdrawn. However, after all, any insolvency resolution process is a case of a mutual contract between the creditors and the debtor – with requisite majority of creditors, it gets the seal of approval of the Adjudicating Authority and becomes a “statutory contract”. Resolution is, therefore, a consensus in substance. Isn’t it possible for the creditors to reach to a consensus with the debtor outside of the insolvency resolution process, and thus, recall the proceedings? In banking parlance, can there be a one-time-settlement (OTS) after admission of insolvency proceedings? Read more →
RBI’s 12th February circular: The Last Word Becomes the Lost World
/0 Comments/in Insolvency and Bankruptcy, RBI /by Vinod Kothari ConsultantsRBI’s 12th February circular:
The Last Word Becomes the Lost World
Abhirup Ghosh (abhirup@vinodkothari.com)
The 12th February 2018 circular of the Reserve Bank of India (RBI)[1] (Circular), arguably one of the sternest of measures requiring banks to stop ever-greening bad loans, and resolve them once for all, with a hard timeline of 6 months, or mandatorily push the matter into insolvency resolution, was aimed at being the last word, overriding several of the previous measures such as CDR, JLF, SSSS-A, etc. However, with the Supreme Court striking it down, in the case of Dharani Sugars and Chemicals Limited vs Union of India and Ors.[2], the mandate of the RBI in directing banks with how to deal with stressed loans has fallen apart. While the SCI has used very technical grounds to quash the 12th Feb circular, the major question for the RBI is whether it should continue to micro-manage banks’ handling of bad loans, and the major question for the banks is when will they grow up into big boys and stop expecting RBI to tell them how to clean up the mess on their balance sheet. Read more →
Simultaneous Claim by a Beneficiary of Guarantee
/0 Comments/in Insolvency and Bankruptcy /by Vinod Kothari ConsultantsBy Richa Saraf (resolution@vinodkothari.com)
Introduction
In a recent case of Dr. Vishnu Kumar Agarwal v. M/s. Piramal Enterprises Ltd.[1] Company Appeal (AT) (Insolvency) No. 346 of 2018, the NCLAT has held that an application for initiation of corporate insolvency resolution process for same very claim/debt is not permissible. Now, consider a situation where Company A (guarantor) has guaranteed the loans given to Company B (principal debtor). When Company B defaulted in payment, the creditor issued a notice to Company A invoking the corporate guarantee, however, even Company A failed to make the payment. If Company A and Company B both are undergoing insolvency proceedings (whether corporate insolvency resolution process or liquidation), can the creditor who has already filed its claim for the entire debt due with the IRP/ Liquidator of Company A, also file its claim with the IRP/ Liquidator of the Company B for the entire debt due? Read more →
LIABILITY OF GUARANTOR AND PRINCIPAL DEBTOR IS CO-EXTENSIVE AND NOT IN ALTERNATIVE
/0 Comments/in Case laws, Insolvency and Bankruptcy /by Vinod Kothari ConsultantsBy Richa Saraf (legal@vinodkothari.com)
In the case of Sanjeev Shriya v. State Bank of India & Ors.[1], the Hon’ble Allahabad High Court has barred parallel proceedings in Debt Recovery Tribunal (DRT) and National Company Law Tribunal (NCLT). Below we discuss the implications and analyse the judgment: