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Ambiguity surrounding out-of-court settlements of insolvency cases, such as the one for Binani Cement, might soon be a thing of the past. A high-level panel reviewing the Insolvency and Bankruptcy Code (IBC) has recommended that the committee of creditors (CoC) concerned should be give the powers to make such a move if 90 per cent of its members are in favour of it, even if the case has been sent to the National Company Law Tribunal (NCLT).
“The review panel unanimously agreed that relevant rules could be amended so that insolvency cases can be withdrawn even after they are admitted to the NCLT if the CoC approves it by a vote share of 90 per cent,” said a source.
The IBC, at present, does not provide for this and there are no clear norms. Now, only the NCLT can allow the withdrawal of cases if debtors and creditors mutually agree on an out-of-court settlement.
The proposed out-of-court settlement between Binani Cement and its creditors is stumbling because of this ambiguity. As the recommendations of the committee, headed by Corporate Affairs Secretary Injeti Srinivas, would not help it, but will be useful for future cases.
The committee also recommended against the fast-track insolvency provision under the IBC. The provision, applicable to start-ups and small companies, requires the resolution process to end in 90 days against 180 days in other cases.
Sources said the committee recommended, “the fast-track insolvency resolution process does not offer any deviation other than timelines. It is not serving the purpose of simplification for small debtors. The dismal statistics on its utilisation echo a similar sentiment”.
The 14-member committee also addressed the issue of companies being recommended for resolution even if they had a winding-up petition pending in court. The panel said leave from a high court was required for this. The IBC allows for a corporate entity to file winding-up petitions under the voluntary liquidation provision.
It also said a list of offences should be prepared and anyone convicted of these be debarred from bidding. At present, the IBC has some bars for bidders, but does not mention the offence.
Also, the committee has recommended a period of six years for disqualification from the day of conviction if the recommendations are accepted. Currently, there is no limit.
Some of the other recommendations made by the committee include reducing the necessary voting percentage from 75 at present to 66 for critical decisions to be approved by the CoC. Critical decisions include extending deadlines for restricting beyond the 180 days, replacement of resolution professionals, approval of resolution plans, and liquidation. In other matters, 51 per cent vote is required.
The committee recommended against extending the 270-day moratorium for restructuring a company after its case is admitted by the NCLT.
The committee was constituted to consider changes to the IBC. Apart from these, issues on the bankruptcy provisions, cross-border insolvency and the rights of home buyers were also looked into. The committee also has lawyers dealing with insolvency cases and Insolvency and Bankruptcy Board of India Chief M S Sahoo as members.