Skip to main content

Amendment to IBC will Help Small Stakeholders but Delay Resolution

Amendment to IBC will Help Small Stakeholders but Delay Resolution
Revised Act says corporate debtor can file insolvency petition only if its shareholders pass special resolution
The recent amendment to the bankruptcy law — that requires shareholder approval before a company files for insolvency and also mandates that the administrator convince the tribunal that the resolution plan is effectively implementable — will benefit small stakeholders but delay resolution.
Last week, the Indian president approved to promulgate the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, which was cheered for bringing home loan buyers at par with financial creditors besides other changes.
The revised Act says the corporate debtor can file insolvency commencement petition only if its shareholders pass a special resolution. “This restricts access to IBC by corporate debtor which is contrary to global best practices,” said Sumant Batra, insolvency expert and managing partner of Kesar Dass. “This will lower the country’s score on the ease of doing business.”
Besides, getting shareholder nod would be time consuming, particularly for listed companies. “Adding one more layer to the process and resultant delay in insolvency process initiation by the corporate debtor - this is the price to be paid for preserving sanctity of shareholders’ rights over management of affairs of company in letter and spirit,” said Hari Hara Mishra, director of UV Asset Reconstruction Company.
“Since this is a major corporate step, it is only in the fitness of things that such action be taken only after approvals by the shareholders and imparts greater transparency in such corporate actions,” said Sunil Srivastava, former deputy managing director of State Bank of India.
Bankruptcy cases against as many as 850 companies have been admitted to National Company Law Tribunal. Of this, the decision for liquidation has been passed for 100 companies and resolution is approved in another 30 cases.
This apart, the amendment also says that before approving the resolution plan, the adjudicating authority should be satisfied that the plan has provisions for its effective implementation. “This will prompt greater scrutiny by adjudicating authority thus exposing resolution plan approvals to delays and uncertainties,” said Batra. “The onus to ensure that the plan can be executed effectively was on the lenders who approved it.”
“Till recently, the matter was approved based on RP's compliance certificate. Now the RP will need to elaborate as to how the new management shall implement the plan and who shall be supervising it till it is fully implemented,” said Subodh Agarwal, registered resolution professional.
The Economic Times, New Delhi, 11th May 2018

Comments

Popular posts from this blog

RBI minutes show MPC members flagged upside risks to inflation

RBI minutes show MPC members flagged upside risks to inflation Concerns about economic growth and easing inflation prompted five of the six monetary policy committee (MPC) members to call for a cut in the repo rate, but most warned that prices could start accelerating, show the minutes of the panel’s last meeting, released on Wednesday. The comments reflected a tone of caution and flagged upside risks to inflation from farm loan waivers, rise in food prices, especially vegetables, price revisions withheld ahead of the goods and services tax, implementation of house rent allowance under the 7th pay commission and fading of favourable base effect, among others. On 2 August, the panel chose to cut the repurchase rate—the rate at which the central bank infuses liquidity in the banking system—by 25 basis points to 6%. One basis point is one-hundredth of a percentage point. Pami Dua, professor at the Delhi School of Economics, wrote that her analysis showed “a fading economic growth outlook, as …

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

Differential Tax Levy under GST: Food Firms May De-Register Trademarks

Differential Tax Levy under GST:Food Firms May De-Register Trademarks The government’s decision to charge an enhanced tax rate on trademark food brands is leading several rice, wheat and cereal manufacturers to consider de-registering their product trademarks. Irked by the June 28 central government notification fixing a 5 per cent goods and services tax (GST) rate on food items packaged in unit containers and bearing registered brand names, the industry has made several representations to the government to reconsider the differential tax levy, which these players say is creating an unlevel playing field within these highly-competitive and low-margin industries. Sources say that the move has affected the packaged rice industry the hardest and allowed the un-registered market leaders, India Gate and Daawat, to gain advantage as compared to other registered brands such as Kohinoor and Lal Qilla. Smaller players are even more worried with this enhanced rate of tax (against the otherwise …