The Insolvency & Bankruptcy Board’s move to make the committee of creditors (CoC) more accountable for its actions appears to have run into rough weather.
The government is apprehensive about handing the oversight of CoC to the Insolvency & Bankruptcy Board (IBBI), as proposed in the code of conduct, and this could delay its implementation, people aware of the matter told ET.
The regulator had intended to take up the proposal in the upcoming board meeting slated for December 24, but it is unlikely to be part of the Board’s agenda as the corporate affairs ministry is yet to take a call, said one of the persons cited earlier.
The ministry, instead, favours an inter-regulatory and coordination-based mechanism.
“IBBI can issue guidelines but cannot regulate the CoC. There have been discussions to implement a mechanism that allows different regulators to coordinate and oversee the CoC instead of IBBI alone,” said a senior official who was privy to the discussions.
There have been talks of setting up a coordination mechanism between the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) as CoC involves banks and market intermediaries.
The bankruptcy regulator wanted to make the CoC more accountable for its actions, which would make the liquidation process fairer and more transparent. It had, in August, put out a draft seeking suggestions from all stakeholders and regulators.
The need for the code of conduct for CoC was felt in the wake of steep haircuts taken by the banks and financial institutions in recent cases of insolvency resolution. There have also been strong observations on CoC’s functioning by the National Company Law Tribunal (NCLT) and even the Parliamentary Standing Committee on Finance. The draft had listed various instances of irregularities on the part of the CoC in several resolution cases in the last couple of years.
Experts, however, say inter-regulatory coordination might not work and it is important to put in place an oversight mechanism for efficient functioning of the CoCs.
“Bankruptcy process is not only about creditors. Other stakeholders are involved in the process, too,” said Anshul Jain, partner, PwC.
Jain said IBBI had been created to oversee the regulations concerning the Insolvency and Bankruptcy Code (IBC). According to the proposed Code of Conduct, members of the committee have to disclose any pecuniary or personal relationship with any stakeholders entitled to distribution as soon as they become aware of it. CoC members would also need to disclose any conflict of interest to the stakeholders whenever it comes across during a process. It also underlines that the CoC must take necessary measures to ensure that the insolvency resolution process cost is reasonable, keeping in balance the need to conduct a smooth and timely resolution process, and not influence the decision or the work of the committee to take undue gain or advantage for itself or its related parties.
