IBC reforms: Govt invites views on group insolvency, pre-packs

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IBC reforms: Govt invites views on group insolvency, pre-packs

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The Ministry of Corporate Affairs (MCA) has invited stakeholder comments on the proposed insolvency law reforms such as group insolvency, pre-packaged insolvency resolution and other issues related to the Insolvency and Bankruptcy Code, 2016 (IBC).

The suggestions and comments have to be sent online by May 7.

The move comes on the heels of the Centre reconstituting the Insolvency Law Committee on March 6. The reconstituted committee has been asked to analyse the functioning and implementation of the Code, and make recommendations to address the issues.

The current legal framework does not facilitate insolvency resolution and liquidation of corporate debtors across a group. The idea behind ‘group insolvency’ is to have a framework that allows multiple entities of a group facing insolvency to club them at a single court for resolution.

The government is keen to quickly bring this concept into play, sources said.

The Videocon example

The absence of such norms is affecting the resolution of an over dozen cases of the Videocon Group, wherein several group companies have been dragged to the National Company Law Tribunal (NCLT) by various lenders. In fact, the lenders have written to the NCLT seeking a group insolvency approach, the sources added. However, the NCLT is not able to do anything as there is no legal provision allowing it.

In January, the Centre had set up an 11-member working group headed by former SEBI chief UK Sinha to examine the idea of group insolvency and suggest a suitable framework.

The process may be useful where two or more applications are pending in the same court against debtors in the same group.

Debtor groups or creditors of such debtor groups can then seek joint proceedings, saving on time and cost.

There has been lot of debate in recent months on whether pre-packs should be allowed.

Pre-packaged insolvency is a procedure where a company arranges to sell all or some of its assets to a buyer before declaring its insolvency. This could be a powerful, legal way to sell the business to a third party.

However, there is a view that such a mechanism should be considered only in a matured legal environment where there is a sound code of conduct applicable to Insolvency Resolution Professionals (IRPs).

Source- Business Line.

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