{"id":7701,"date":"2019-11-16T07:44:55","date_gmt":"2019-11-16T07:44:55","guid":{"rendered":"https:\/\/sunkrish.com\/?p=7701"},"modified":"2019-11-16T10:22:46","modified_gmt":"2019-11-16T10:22:46","slug":"ibc-proceeds-formula-may-be-reworked-to-avoid-squabbles-legal-delays","status":"publish","type":"post","link":"https:\/\/sunkrish.com\/index.php\/2019\/11\/16\/ibc-proceeds-formula-may-be-reworked-to-avoid-squabbles-legal-delays\/","title":{"rendered":"IBC proceeds formula may be reworked to avoid squabbles, legal delays"},"content":{"rendered":"
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The Centre is looking at further changes to the IBC as it doesn\u2019t want to leave any room for litigation on the distribution of proceeds.<\/em><\/figcaption><\/figure>\n\n\n

The government is considering a formula for distributing the proceeds of insolvency resolution among financial and operational creditors in a fixed proportion, said people with knowledge of the matter. The goal is to protect the interests of operational creditors and reduce delays due to litigation, ensuring that the objective of the Insolvency and Bankruptcy Code (IBC) is preserved.<\/p>\n\n\n\n

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\u201cThis is one of the solutions that is being looked at,\u201d an official said. The government will take a final call only after extensive deliberations, he added.<\/p>\n\n\n\n

<\/p>\n\n\n\n

Distribution of resolution proceeds has emerged as one of the key factors behind the extended litigation, delaying major insolvency cases. Dissatisfied operational creditors have been the source of such cases in some instances.<\/p>\n\n\n\n

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The Supreme Court is currently deciding on the distribution of proceeds in the case of Essar Steel, which entered the National Company Law Tribunal (NCLT) system in August 2017. The process was thought to have ended when Arcelor Mittal\u2019s Rs 42,000-crore bid for the debt-ridden steel manufacturer was approved in March 2019. But the original promoters, the Ruias, opposed approval of the plan, questioning Arcelor Mittal\u2019s eligibility.<\/p>\n\n\n\n

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Operational creditors rejected the plan on the grounds of discriminatory treatment. Financial creditor Standard Chartered Bank has also gone to court against the resolution plan on the same grounds. Financial creditors moved the Supreme Court after the National Company Law Appellate Tribunal (NCLAT) ordered proportional recovery for both financial and operational creditors. Under the IBC, cases have to be decided within a 330-day window.<\/p>\n\n\n

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The decision to change the rules to grant greater protection to operational\ncreditors had come from the \u201chighest levels of the government,\u201d said one of the\npersons.<\/p>\n\n\n\n

The Centre is looking at further changes to the IBC as it doesn\u2019t want to\nleave any room for litigation on the distribution of proceeds, the person said.\nThe IBC is regarded as one of the signal reforms of the first Narendra Modi\ngovernment. The process got bogged down in litigation over some of the biggest\ncases, blunting the IBC\u2019s aspiration of speeding up bankruptcy resolution and\ncleaning up banks\u2019 books. The 2016 IBC has already been tweaked several times\ntoward this end.<\/p>\n\n\n\n

Operational creditors had slightly higher recoveries than financial\ncreditors, according to data available with the government, said the person\ncited above. The Insolvency and Bankruptcy Board of India has pegged the\naverage recovery for financial creditors in cases where there was successful\nresolution at 41.5% at the end of the September quarter.<\/p>\n\n\n\n

In the latest set of amendments to the IBC, carried out in the budget\nsession of parliament, the government had clarified that the CoC would have the\nright to decide on the distribution of proceeds but that all creditors must\nreceive liquidation value or the amount they would receive if resolution\nproceeds were distributed according to the \u2018waterfall mechanism,\u2019 whichever is\nhigher.<\/p>\n\n\n\n

The waterfall mechanism under the IBC outlines the order of priority for\nrepayment to creditors in the event of liquidation.<\/p>\n\n\n\n

Under this, secured creditors have to be paid fully before any payments can\nbe made to unsecured financial creditors who in turn have priority over\noperational creditors.<\/p>\n\n\n\n

Experts said the government will have to come up with a balanced\nformulation. Setting a high fixed proportion for operational creditors could\nprompt CoCs to opt for liquidation instead of resolution. \u201cAt present, in many\ncases, operational creditors are not getting anything,\u201d said Manoj Kumar, partner\nat Corporate Professionals.<\/p>\n\n\n\n

Source: Economic Times<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The government is considering a formula for distributing the proceeds of insolvency resolution among financial and operational creditors in a fixed proportion, said people with knowledge of the matter. The goal is to protect the interests of operational creditors and … Continued<\/a><\/p>\n","protected":false},"author":1,"featured_media":3708,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[490,15,4,493],"tags":[297,311,314,970,962,462,505,393],"class_list":["post-7701","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-company-incorporations-e-filing-of-mca-returns","category-corporate-business-advisory-services","category-financial-corporate-services","category-economy-business-updates-corporate-affairs","tag-company-law","tag-corporate","tag-debt","tag-insolvency-and-bankruptcy-board-of-india-ibbi","tag-insolvency-and-bankruptcy-code-ibc","tag-narendra-modi","tag-national-company-law-tribunal-nclt","tag-non-performing-assets-npa"],"_links":{"self":[{"href":"https:\/\/sunkrish.com\/index.php\/wp-json\/wp\/v2\/posts\/7701","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/sunkrish.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sunkrish.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sunkrish.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/sunkrish.com\/index.php\/wp-json\/wp\/v2\/comments?post=7701"}],"version-history":[{"count":22,"href":"https:\/\/sunkrish.com\/index.php\/wp-json\/wp\/v2\/posts\/7701\/revisions"}],"predecessor-version":[{"id":7766,"href":"https:\/\/sunkrish.com\/index.php\/wp-json\/wp\/v2\/posts\/7701\/revisions\/7766"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/sunkrish.com\/index.php\/wp-json\/wp\/v2\/media\/3708"}],"wp:attachment":[{"href":"https:\/\/sunkrish.com\/index.php\/wp-json\/wp\/v2\/media?parent=7701"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sunkrish.com\/index.php\/wp-json\/wp\/v2\/categories?post=7701"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sunkrish.com\/index.php\/wp-json\/wp\/v2\/tags?post=7701"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}