PLAN FOR PHASED ROLL-OUT OF GROUP INSOLVENCY NORMS

UK Sinha-led committee recommends coordination in domestic companies of a group in the first phase

For better synchronisation of different insolvent companies that are part of a corporate group, former Securities and Exchange Board of India (Sebi) chairman UK Sinha-led working committee has suggested that there is a need for a comprehensive regulatory framework to facilitate the insolvency resolution and liquidation of companies in a group.

But, the working group is of the opinion that the framework for group insolvency in India should be introduced in a phased manner. Also, the working group has suggested that the framework should be enabling and relevant stakeholders of the corporate debtor may opt to use the framework voluntarily, but provisions relating to communication, cooperation, and information sharing may be mandatory for insolvency professionals, adjudicating authorities and committees of creditors (Cocs).

“While the IBC provides detailed provisions to deal with the insolvency of a corporate debtor on a standalone basis, it does not envisage a framework to either synchronise insolvency proceedings of different corporate debtors in a group or resolve their insolvencies together,” the report said.

So far, insolvency of different corporate debtors belonging to the same group is dealt with through separate insolvency proceedings for each corporate debtor.

However, in the insolvency resolution of some corporate debtors, including Videocon, Era Infrastructure, Lanco, Educomp, Amtek, Jaypee, and Aircel, special issues arose from their interconnections with other group companies.

“This highlights the need to examine the desirability and feasibility of having a group insolvency framework,” the report said.

According to the working group, initially the framework should bring in coordination in only domestic companies of a group while cross-border group insolvency could be considered at a later stage. The working group has also recommended that substantive consolidation of companies under a group may also be kept out in the first phase.

The working group has said a corporate group may include holding, subsidiary, and associate companies, as defined under the Companies Act, 2013. However, an application may be made to the adjudicating authority to include 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.

The framework envisaged by the working group says that the insolvency law may facilitate a single application to be filed to commence the corporate insolvency resolution processes (CIRP) of multiple companies in a group, before any adjudicating authority that has jurisdiction over any one of the companies.

Similarly, a single resolution professional and a single adjudicating authority can be designated for resolution of multiple companies as part of the same group. However, if there are capacity constraints or potential conflict of interest, then there can be multiple insolvency professionals.

But, in cases where there are different insolvency professionals, adjudicating authorities and Cocs are involved, the working group has recommended that they should be mandated to cooperate, communicate and share information with each other for effective administration of different insolvency proceedings.

Moreover, the insolvency law may also look at creation of group creditors’ committee to support individual committee of creditors for each company. However, the composition, constitution and costs of the group creditors’ committee may be decided by an agreement between Cocs of companies in a corporate group, the working group said.

The group has also recommended enabling group coordination proceedings, which will be at the discretion of the COC.

“Group coordination proceedings may be governed by a framework agreement among the Cocs of the participating corporate debtor. It may entail appointment of a “group coordinator”, who would propose a strategy for the synchronised resolution of insolvency of the group companies,” the report said.

In the group proceedings, a common expression of interest, resolution plan can be proposed.

Moreover, the framework also gives a leeway for companies opting group proceedings to further extend the CIRP process by another 90 days beyond the 270 days.

The group has recommended allowing procedural coordination at any stage of the insolvency process. Also, if any group wants to have coordination at the liquidation stage, it may be allowed on a fresh application after which a single insolvency professional, a single adjudicating authority would be designated and group coordination proceedings would also start even at the liquidation stage.