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Code of conduct for committee of creditors in the works: MCA Secretary

Our Bureau New Delhi | Updated on August 27, 2021

Rajesh Verma, Secretary, Ministry of Corporate Affairs

Corporate Affairs Ministry working with RBI, IBA and DFS on this front

A professional code of conduct for the committee of creditors (CoC) in insolvency cases is on the cards, Rajesh Verma, Secretary, Ministry of Corporate Affairs (MCA), indicated on Friday.

“We are working with RBI, Indian Banks’ Association, DFS on this important issue of conduct of committee of creditors,” Verma said at a Confederation of Indian Industry organised virtual national conference on ‘5 Years of IBC, 2016 & Way Forward’.

Verma’s remarks are significant as it comes on the heels of the Standing Committee on Finance headed by Jayant Sinha flagging the “disproportionately large and unsustainable haircuts” taken by CoCs (gone up to as high as 95 per cent), raising concern that the IBC may have “deviated” from its original objective.

There is an urgent need to have a professional Code of Conduct for the CoC, which will “define and circumscribe their decisions, as these have large implications for the efficacy of the code,” the Panel had suggested.

Having a code of conduct for CoCs would be interesting especially after the Supreme Court has endorsed the IBC position that the “commercial wisdom” of the CoC cannot be questioned and that they enjoy complete autonomy in taking commercial decisions, say IBC observers.

Verma also said that insolvency regulator Insolvency and Bankruptcy Board of India (IBBI) has been working on building capacity of the CoC through various seminars and addressing market issues.

Pre-pack programme

He also indicated that government may soon take a view on the issue of extending the concept of pre-packaged insolvency resolution programme to large companies as well. This pre-pack concept was recently introduced by the government for micro, small and medium enterprises, which were worst affected in the ongoing pandemic.

“We are aware of the demand being made at various forums for extending the pre-packaged insolvency resolution process to larger corporates. IBC is an evolving legislation as we have seen,” Verma noted.

Shardul Shroff, Chairman of CII’s National Committee on Insolvency, cautioned that having any code of conduct for Committee of creditors through the IBBI would be a mismatch. A different treatment is required for this as Reserve Bank of India as the licensor of the banks would be the appropriate body to oversee any code of conduct for the committee of creditors, he noted.

Koushik Chatterjee, Chairman, CII National Committee for CFOs and Chief Financial Officer, Tata Steel said that pre-pack framework for large companies is as important as for small companies. “It maybe worthwhile to look at allowing pre-pack for large companies as it will ensure sustenance of business is continued”, he said.

Stakeholders’ interests

Earlier, in his address at the inaugural session, Krishnamurthy Subramanian, Chief Economic Advisor to the Finance Ministry, said that IBC, 2016 has helped in balancing the interests of various stakeholders, thereby, creating an optimal as well as fair ecosystem for resolving insolvency in current times.

It has shifted the focus from the ‘Debtor in Possession’ to a ‘Creditor in Control’ regime, he said.

While elucidating on the developments under the Code, he said that all the stakeholders involved in the insolvency procedures need to come together and overcome sub-optimal output so that the system as a whole attains its equilibrium.

Published on August 27, 2021

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