Con­fu­sion over share­hold­ers’ nod for in­sol­vency

Business Standard - - COMPANIES - SUDIPTO DEY

Le­gal fra­ter­nity and in­sol­vency pro­fes­sion­als ap­pear di­vided over share­hold­ers' ap­proval for cer­tain res­o­lu­tions un­der In­sol­vency and Bank­ruptcy Code (IBC).

Var­i­ous stake­hold­ers in in­sol­vency res­o­lu­tion process are ap­pre­hen­sive of the com­pany law and Sebi (Se­cu­ri­ties and Ex­change Board of In­dia) reg­u­la­tions. Many feel, un­less there is align­ment of IBC with these laws, pro­mot­ers of com­pa­nies go­ing through in­sol­vency res­o­lu­tion may have more say in the turn­around process, in­clud­ing block­ing any part of the res­o­lu­tion. This may stretch the in­sol­vency res­o­lu­tion process, they add.

Ac­cord­ing to IBC, a res­o­lu­tion plan for a dis­tressed com­pany has to be firmed up by the Com­mit­tee of Cred­its within 180 days; the time pe­riod can be ex­tended by 90 days, tak­ing the to­tal pe­riod to 270 days. Within this pe­riod, the pro­mot­ers do not have a say in the man­age­ment of the com­pany that is han­dled through a cour­tap­pointed pro­fes­sional.

How­ever, un­der cer­tain pro­vi­sions of the Com­pa­nies Act, any changes in the cap­i­tal struc­ture of a com­pany re­quires share­holder ap­proval. Ac­cord­ing to Neha Mal­ho­tra, ex­ec­u­tive di­rec­tor, Nan­gia and Co, Sec­tion 30 of IBC says any res­o­lu­tion plan has to be in line with law. "By that logic, all statu­tory re­quire­ments un­der com­pany law have to be met, in or­der to im­ple­ment the res­o­lu­tion plan, which could be in the form of pref­er­en­tial is­sue of shares, sale of as­sets, etc," says Mal­ho­tra.

Not ev­ery­one agrees. "Go­ing back to share­hold­ers at that stage for ap­proval de­feats the whole pur­pose of the re-struc­tur­ing exercise," says Su­mant Ba­tra, an in­sol­vency pro­fes­sional. This may fur­ther de­lay the whole res­o­lu­tion process that has to be com­pleted within 270 days, he adds.

Le­gal ex­perts point out Sec­tion 238 of IBC; this pro­vi­sion gives IBC an over­rid­ing ef­fect over other laws, says Shyam Agrawal, president, In­sti­tute of Com­pa­nies Sec­re­taries of In­dia. Agrees Atul Sharma, man­ag­ing part­ner of law firm Link Le­gal: "IBC be­ing a spe­cial statute will pre­vail over Com­pa­nies Act, a gen­eral statute."

Le­gal ex­perts say that go­ing by Sec­tion 31 of IBC, any res­o­lu­tion plan is bind­ing on cor­po­rate debtor, its em­ploy­ees, mem­bers, cred­i­tors, guar­an­tors and other stake­hold­ers. Fur­ther, Reg­u­la­tion 39 (6) of the IBC states that a res­o­lu­tion plan would take ef­fect ir­re­spec­tive of con­sent among share­hold­ers, add lawyers.

How­ever, most le­gal ex­perts and in­sol­vency pro­fes­sion­als agree that IBC could be tweaked to bet­ter align it with ex­ist­ing laws. Ac­cord­ing to Pratik Datta, a pub­lic policy re­searcher, the cor­po­rate af­fairs min­istry should cre­ate a con­stant feed­back loop be­tween stake­hold­ers and pol­i­cy­mak­ers.

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