Archive for category: Resolution

By Richa Saraf (richa@vinodkothari.com)

Resolution process can be regarded as a mega- restructuring for which an insight into the ranking of claims of various creditors is pertinent. In most of the resolution plans, we can see that the financial creditors are paid a particular value as settlement of claims, and no specific provision exists as to how this amount is to be proportioned amongst various secured and unsecured creditors, or if there will be any priority at all. Most of us are of the understanding that any priority under Section 53 is available only in the case of liquidation, and law does not stipulate for any preferential treatment between the claims of secured and unsecured during resolution process, yet it is a well-established principle that while resolving an entity, the creditors of that entity shall not be put in a situation worse than what would have been in case the entity were to be liquidated (or else, there would be no point in resolving the entity). A comparison between a creditor’s entitlement in the resolution plan and in a hypothetical liquidation is referred to as “vertical comparison”.

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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 →