Economy

Group insolvency resolution: UK Sinha-led panel recommends phased implementation of framework

KR Srivats New Delhi | Updated on October 14, 2019 Published on October 14, 2019

Several top-notch NBFCs have had to face blow out-like situations, causing concern among retail investors   -  lakshmiprasad S

The UK Sinha-led Working Group on Group Insolvency has called for a legal framework to facilitate insolvency resolution and liquidation of companies belonging to a group.

The framework may be enabling, and may be voluntarily used by relevant stakeholders of the company, the Working Group recommended in its 100-page report submitted to insolvency regulator IBBI recently.

Indications are that the recommendations of the working group report will be considered at the upcoming meeting of the Insolvency Law Committee.

Meanwhile, only provisions relating to communication, cooperation and information sharing may be made mandatory for insolvency professionals, Adjudicating Authorities and Committee of Creditors (CoC) of the companies which belong to a group and have been admitted into CIRP, the report said.

However, the Working Group has suggested that the law may enable phased implementation of the framework.

Phased implementation

The first phase may facilitate the introduction of procedural coordination of only domestic companies in groups and rules against perverse behaviour, it has suggested..

Cross border group insolvency and substantive consolidation could be considered at a later stage, depending on the experience of implementing the earlier phases of the framework, and the felt need at the relevant time, the Working Group has said.

For the purposes of the framework, a ‘corporate group’ may include holding, subsidiary and associate companies, as defined under the Companies Act, 2013.

However, companies that are so intrinsically linked as to form part of a ‘group’ in commercial understanding, but are not covered by the definition of corporate group above, could also be included based on an application to the Adjudicating Authority, the report has suggested.

It may be recalled that the Insolvency and Bankruptcy Board of India (IBBI) had in Januaryset up an 11-member Working Group under the Chairmanship of Singh, a former SEBI Chairman, to suggest a comprehensive framework for resolving insolvency of a group of companies.

Complete framework

The Working Group was tasked by IBBI to recommend a complete framework to facilitate insolvency resolution and liquidation of companies in a group.

Currently, the IBC provides for the resolution or liquidation of only individual stressed companies. So a framework within the IBC is sought to be created for the resolution/liquidation of an entire stressed corporate group having several entities in multiple NCLT jurisdictions.

The idea is to have a framework that allows insolvency proceedings over companies within a corporate group to be concentrated under a single insolvency court and/or administered by one insolvency administrator.

A group insolvency framework will help prevent corporate groups from uncontrollably falling apart in insolvency, thwarting the chances of their restructuring.

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Published on October 14, 2019
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