A committee to review the insolvency and bankruptcy code (IBC) has proposed allowing companies undergoing insolvency to ask for the supply of more essential goods than are currently permitted under the law to make it a going concern.
For this, the panel suggested expanding the definition of essential goods under IBC regulations.
The Insolvency and Bankruptcy Board of India has invited public comments on the proposed amendment to the regulations. According to regulation 32 of IBC, four items — electricity, water, telecommunications, and information technology — are currently covered under essential goods.
The insolvency law committee (ILC) has proposed “the list of essential supplies in the regulations be expanded to include supplies which are significant to, and have a direct relationship with, the production of goods or supply of services by the corporate debtor to remain as a going concern.”
It has also stated that the resolution professional can approach the National Company Law Tribunal under a new provision for continuation of supply of essential goods or services other than the ones specified currently.
The four essential supplies are basic requirements for any corporate debtor to remain as a going concern, irrespective of its business and not meant to make commercial profit, the committee said. Supply of these cannot be discontinued during the resolution process and dues payable to suppliers of these are to be paid in priority as part of resolution process cost.
The ILC has stated, “Regulation 32 is limited to supplies which are essential for any CD, irrespective of the business it is carrying on. Thus, ILC was of the view that for determining goods and services essential for a particular business, there should be some flexibility in the Code.”
For instance, water supplied to a corporate debtor is an essential supply for drinking and sanitation purposes, but not for generation of hydro-electricity. Thus, supply of water for generation of hydro-electricity is not essential supplies
“In the absence of prohibition on termination of water supply for generation of hydro-electricity, it may be difficult to keep the corporate debtor as a going concern,” the ILC has said.
In such cases, the resolution professional, in order to ensure the survival of the stressed asset, negotiates with suppliers critical to the functioning of the company and at times seeks intervention of the adjudicating authority to secure these services.