India’s bankruptcy regulator is seeking to amend rules to make the Insolvency and Bankruptcy Code (IBC) suitable for handling group insolvency, with accounts such as VideoconNSE -3.51 %, Sachet Infra and Lavasa underscoring the problem of indebtedness at the group level.
A panel on group insolvency has submitted its report to the Insolvency and Bankruptcy Board of India (IBBI), proposing reforms in the legal framework to address group insolvency. The report has recommended that the definition of ‘group’ be specific, and it may include holding, subsidiary and associate companies.
In case of Videocon, the National Company Law Tribunal (NCLT) had ordered consolidation of assets and liabilities of 13 group entities. The Videocon Group operated as a single economic unit with inter- dependence and also had common lenders, where all 13 companies were co-obligators.
In the case of Adel group of companies, the court suggested procedural coordination to ensure simultaneous proceedings with a common resolution professional. “It is important that a detailed assessment be made with respect to entities that would be brought into group insolvency,” said Satish Kumar Gupta, a resolution professional. “Group insolvency should lead to resolution that is value accretive for that particular group, realising value more than on the sum-of-the-parts basis, with assessment of feasibility and ease of resolution in terms of compressed time schedule, investor interest, and implementation.”
Bringing entities on the basis of inter-connectedness or common assets into the group resolution framework may face challenges and lead banks to classify standard accounts as NPAs, dragging standard cases into insolvency because of non-recovery of dues after insolvency resolution.
Source: Economic Times