Through Ashok Kumar Gulla
The Insolvency and Bankruptcy Code, 2016 (IBC Code) adopted on May 28, 2016, provides for the invitation of resolution plans of potential resolution applicants (PRA) for the reconstitution of the debtor company (CD). However, in the event that no resolution plan is received or approved, the Arbitration Authority (AA) may place a liquidation order under Section 33 of the IBC Code. Regulation 2B was introduced in Regulation IBBI (Liquidation Process), 2016 on July 25, 2019, opening another window for the sale of CDs by inviting a scheme of compromise or arrangement under section 230 of the Law on the companies of 2013 (the diagram). Although this initiative is a welcome initiative, it is fraught with ambiguities and therefore not starting point. There has been virtually no program proposal approved in the recent past for CD in liquidation.
The scheme was initially considered for the creditor or a member of the company when the IBC code was not promulgated. The scheme is similar to obtaining the resolution of the CD as part of the corporate insolvency resolution process (CIRP). However, anyone who is not eligible under Sec 29A of the Code will not be eligible to submit the Scheme for CD in Liquidation.
Difference between the resolution plan in the CIRP and the compromise or arrangement under article 230 of the Companies Act for the CD in liquidation
Approval of the resolution plan in the CIRP requires a minimum of 66% of the voting shares of the members of the Creditors Committee (CDC). On sale by Sec. 230 of the 2013 Companies Act, it must be approved up to 75% (in value) of the shares with voting rights by each category of stakeholders, i.e. financial creditors, non-creditors guaranteed and shareholders in accordance with company law. There is no voting percentage defined in the Liquidation Process Code or Rules for the approval of the CD liquidation program. The final decision rests with AA.
In the CIRP, the amount to be paid to the various stakeholders against their claims is proposed in the resolution plan after having complied with article 30 of the Code. For the approval of the system, no specific mention is made in the code or regulation of how the payment is to be distributed among the stakeholders. The potential bidder through the system can propose the amount which is put to the vote of all stakeholders and the program to be approved by AA.
The deadline is 180 days, which can be extended by an additional 90 days for the completion of the CIRP. The whole process, however, must be completed no later than 330 days. In the Sec 230 Compromise Arrangement, the period allowed under Regulation 2B of the IBBI Regulation (Liquidation Process) is 90 days from the date of the Liquidation Order. The liquidator can apply to AA, if there is sufficient reason, asking for an extension of the time to complete the process.
The PRA is looking for various exemptions, reductions and concessions in the resolution plan which are first approved by the CoC and then by AA. Various laws have also been amended in accordance with the IBC to provide relief when the plan is approved under the CIRP. There is no provision in either the Companies Act or the Code regarding seeking exemptions and concessions in the Section 230 process. The same must be sought in the system proposed to AA.
Necessary modification of the IBC code and relevant regulations for the compromise scheme
The system provider who wishes to acquire the CD under section 230 of the Companies Act will wish to acquire it without any liability or legal case, including penalties for past actions. In order to get more proposers, it is prudent to clarify the main reliefs, concessions and processes to be followed by amending the law and regulations, briefly summarized as follows:
– In accordance with the original intention, the program should be invited by creditors and stakeholders. It is presumed that the liquidator can invite a draft compromise or arrangement to third parties other than creditors and stakeholders. If more than one system is received, if all of these systems must first be submitted to AA or if approval of these systems is first sought from the secure CFs.
– Is the applicant eligible for the various benefits provided for in the resolution plan, such as deferral of business losses and immunity from all legal proceedings and penalties prior to approval of the system.
– Is the program applicant eligible for waiver of all statutory contributions relating to the period prior to approval and, in the event that government authorities do not accept the program, can Hon’ble NCLT exercise its jurisdiction? to approve the proposed system?
– Is the applicant bound by the requirement of the SEBI trade-in code when the company is listed?
What must be the part with voting rights required for the approval of the plan by the stakeholders under Article 230 of the Companies Act 2013 since no shares with voting rights are defined in the Code or regulations for approval of the plan.
– Is approval from all stakeholders required or can it be waived given that unsecured creditors and shareholders will be paid less in priority under section 53 of the code in the event of a sale in under rule 32 of the liquidation process.
– How will the shares be allocated to the purchaser when he acquires all the equity shares?
If section 230 is unsuccessful, the liquidation process resumes and the liquidator resumes the sale as a going concern in accordance with rule 32 (e) and (f) of the liquidation process. It should be considered whether the system can attract investors or if it represents a waste of time and effort required and, accordingly, appropriate measures should be taken. It is considered appropriate to delete section 230 as a separate process, as the resolution plan under the CIRP and the sale of CDs as a going concern under regulation 32 (e) of the liquidation process better serve the purpose. ‘goal.
(Ashok Kumar Gulla is an Insolvency Professional and Partner at RBSA Restructuring Advisors LLP. The opinions expressed are those of the author.)