Insolvency Law Committee Plans To Meet On October 15 To Discuss New Reforms For IBC

The government-appointed Insolvency Law Committee (ILC) will meet on October 15 to deliberate on various proposed reforms to the existing insolvency and bankruptcy code (IBC), including new concepts such as group insolvency, said a member of the panel.

“ILC will be meeting on October 15 to discuss the various reforms,” MS Sahoo, Chairperson, Insolvency and Bankruptcy Board of India (IBBI), and a member of ILC, told BusinessLine.

He was responding to a query on the next course of legislative action on the IBC front. Besides group insolvency, indications are that the ILC will also discuss a new mechanism for resolution of stressed finance companies. An ILC sub-committee has already submitted recommendations for resolution of stressed finance companies. Currently, IBC does not apply to finance companies.

The new resolution mechanism for finance companies may apply only to limited set of entities. Deposit taking and systemically important NBFCs may be kept out, it is learnt. The Centre may finally go for a regime where the RBI and SEBI will have to approve the entities that can be taken to IBC for resolution.

It may be recalled that the Centre had, in March this year, reconstituted the ILC as a standing committee for review of implementation of Insolvency and Bankruptcy Code 2016.

The reconstituted committee – headed by Corporate Affairs Secretary Injeti Srinivas – has been asked to analyse the functioning and implementation of the code and make recommendations to address the issues.

The current legal framework does not facilitate insolvency resolution and liquidation of corporate debtors across a group. The idea behind ‘group insolvency’ is to have a framework that allows multiple entities of a group facing insolvency to club them at a single court for resolution.

The government is keen to quickly bring this concept into play, sources said. The upcoming Winter session of Parliament may see some legislative action on the same. The MCA has already ruled out an ordinance for the introduction of new concepts such as cross-border insolvency and group insolvency.

The absence of such group insolvency norms is affecting the resolution of high profile cases, including more than a dozen cases of the Videocon Group, where several group companies have been dragged to the National Company Law Tribunal (NCLT) by various lenders. In fact, the lenders have written to the NCLT seeking a group insolvency approach, the sources added. However, the NCLT is not able to do anything as there is no legal provision allowing it.

In January, the Centre had set up a 11-member working group headed by former SEBI chief UK Sinha to examine the idea of group insolvency and suggest a suitable framework. The process may be useful where two or more applications are pending in the same court against debtors in the same group.