The Centre has amended the Insolvency and Bankruptcy Code to accord priority in payment for unsecured operational creditors ahead of financial creditors.
“The amount due to the operational creditors under a resolution plan shall be given priority in payment over financial creditors”, the amended regulation stated.
Small, unsecured operational creditors who currently have no say in the resolution plan may welcome the move, but there is an ambiguity in the implementation of the amendment as the payment for operational creditors is linked to the resolution plan, which is approved by the committee of creditors (CoC), said a senior lawyer, requesting anonymity.
Sameer Kaji, an independent insolvency adviser for Binani Cement, said the amendment will ensure that the CoC negotiates better a deal from the bidders as they have to consider the interest of small operational creditors too.
Until now, operational creditors could have voted on the resolution plan only if they account for more than 10 per cent of the overall default.
In the case of attractive assets such as Binani Cement and Essar Steel, operational creditors’ interests are taken care of fully as they have received good response from bidders, Kaji said. However, most of the operational creditors got a raw deal in resolution plans approved by the CoC. In the case of Bhushan Steel, infrastructure major L&T had to move the Supreme Court to recover its dues of ₹900 crore. As many as 70 operational creditors of Binani Cement had also formed a forum to claim their dues.
In addition to making payment to operational creditors priority, a senior banker said, banks leading the insolvency process should ensure that operational creditors remain associated with the company so that the resolution plan succeeds. In case they pull the plug, the financial creditors will not get anything from the asset in distress.
However, a public sector banker said the plans approved by the National Company Law Tribunal already abide by the amendment.
Sanjay Mehta, an insolvency case consultant, said the government needs to take further steps to empower operational creditors with voting powers on the resolution plan.