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FM says IBC May Get Linked to a Settlement Scheme Later

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The option of “marrying” the insolvency framework with a possible settlement scheme to deal with resolution of debt-laden companies is something that can be considered in the future, said finance and corporate affairs minister Arun Jaitley. It will be only after the initial batch of bankruptcy cases is cleared, Jaitley said at an event Tuesday. “We have to see if revival is only through the Insolvency and Bankruptcy Code (IBC) or can we revive otherwise,” he said, sounding a note of caution that the various Reserve Bank of India schemes for settling and restructuring debt had not yielded much success.
“I think today may not be the right time to go in for this discussion because of the huge rush of companies coming into the insolvency process. But once this rush is off over the next couple of years, business comes back to usual and honest creditor-debtor relationship is restored on account of IBC, a situation may arise when we have to consider a need to marry the two processes, so they may well simultaneously exist,” the minister said. Earlier this year, RBI scrapped numerous programmes adopted by banks to restructure unpaid loans as it pitched IBC as the main resolution tool.
Schemes for corporate debt restructuring, sustainable structuring of stressed assets (S4A), strategic debt restructuring and flexible structuring of existing long term project loans were abolished. The Joint Lenders’ Forum, designed to resolve potential bad debts, was disbanded.
SECTION 29A & OPERATIONAL CREDITORS
The finance minister said there was a need to amend Section 29A of IBC, which was too broad, especially in connection with the definition of related parties among those specified as ineligible to offer resolution plans. Some contradictions have been pointed out, particularly in regard to related parties that may be business opponents or have nothing to do with each other business-wise, Jaitley said. He said there was also some rethink needed on the role of operational creditors. “I think the first suggestion, which has been coming from many people, is really the role of operational creditors as far as the whole process is concerned. So, as resolutions take place, will they get almost nothing or something marginal – I think that’s a question for academics for future debates,” he said. Once the big cases are resolved, this is an issue which will have to be adequately addressed, he added.
The Supreme Court had Monday suggested operational creditors of bankrupt firms be given a voice in resolution in proportion to debt, including voting rights. IBC had helped in recovering about ?3 lakh crore from default loan cases, either directly or indirectly, since its introduction in 2016, corporate affairs secretary Injeti Srinivas had said in November. In about 60 resolution cases that yielded ?71,000 crore, average recovery rate was about 46%, compared with 26% in the previous Board for Industrial and Financial Reconstruction regime, Srinivas said.

The Economics Times, 19th December 2018

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