Government considers time limit for withdrawal of cases under IBC

Government considers time limit for withdrawal of cases under IBC 

No Exit Route

Companies referred to bankruptcy courts may not be allowed to leave the process once bids have been invited or a resolution plan has been accepted. 

90% of the creditors vote is necessary withdrawal.

The government is considering setting a time limit for withdrawing cases admitted for insolvency resolution, ending ambiguity on a key aspect of the procedure. A 14-member law committee on the Insolvency and Bankruptcy Code had recommended allowing retraction of applications if 90% of the creditors voted in favour of withdrawal.

The government wants to set a clear cut-off time

However, the panel had not specified a time limit for withdrawal of such cases. The government now wants to set a clear cut-off time, after which a reference under the code cannot be withdrawn.

“After a resolution plan has been accepted, no such withdrawal should be allowed... even after you have received all bids, such a move should not be permitted,” a senior government official told ET. This means that a settlement outside the insolvency resolution process may not be allowed once bid have been invited.

 Binani Cement Insolvency case  & UltraTech Cement Ltd offer

The issue of withdrawal of applications came to the fore when Binani Industries Ltd. sought to pull its debt-ridden subsidiary Binani Cement from the insolvency resolution process after UltraTech Cement LtdNSE 1.19 %. offered to acquire the company and pay off creditors. The Supreme Court rejected the plan and the National Company Law Tribunal ordered the lenders last week to consider a revised bid by UltraTech for Binani Cement and allowed Dalmia Bharat, which had been declared the highest bidder to match its offer.

SETTLEMENT WITHIN TIME FRAME WORK

The IBC committee chaired by corporate affairs secretary Injeti Srinivas had noted that there were instances of cases being withdrawn following a settlement reached between the debtor and applicant creditor. While the idea is that such settlements should be allowed, they should be within a framework that does not undermine the resolution process where bids have been called. 

Proposed changes by the IBC committee

The changes proposed by the IBC committee are likely to be made effective soon after some fine-tuning, the senior official added. Besides recommending a voting threshold for withdrawal of cases, the panel revised the level of majority voting to 66% for important decisions such as approval of resolution plans and allowing liquidation and to 51% for approval of routine matters. 

Changer of Rules Soon

The committee took note of judgements by the NCLT and the appellate tribunals to recommend that rules may be amended to provide for withdrawal of cases with the approval of 90% of the committee of creditors votes. 

It also said those entering into any backdoor arrangement with corporate debtors formally or informally, directly or indirectly, should be barred from bidding for the insolvent company by bringing them within the scope of the definition of connected people. The government is likely to issue an ordinance to give effect to the changes.

Courtesy : The Economic Times 

Why Binani Cement deal is a test case for Insolvency and Bankruptcy Code?

Why Binani Cement deal is a test case for Insolvency and Bankruptcy Code?

UltraTech Cement Struck a Deal with Binani Cement

That UltraTech Cement struck a deal with Binani Cement outside the IBC framework, especially when lenders had already chosen Dalmia Bharat as the top bidder, tests the sanctity of the Insolvency and Bankruptcy Code

14 Petitions Against Binani Cement Ltd , Insolvency Case

Fourteen petitions. That’s the number of pleas filed against the insolvency proceedings of Binani Cement Ltd, which is fast turning out to be a test for the Insolvency and Bankruptcy Code (IBC) due to multiple issues ranging from allegations of fraud to lack of transparency in the bidding process. Hearings are currently underway at the Kolkata bench of the National Company Law Tribunal (NCLT).

1. What’s the background?

Binani Cement was a regular bankruptcy case under IBC. Bids were called for, and the committee of creditors chose a Dalmia Bharat Ltd-consortium as the winner. The resolution professional had also filed the Dalmia Bharat resolution plan with the tribunal. However, UltraTech Cement Ltd, which had also put in a bid for Binani Cement, alleged that the process for choosing the top bidder was not transparent and that the resolution professional had not followed established best practices.

2. What did UltraTech do then?

It complained to NCLT and also wrote to Binani Cement’s resolution professional, offering to increase its bid to about Rs6,900 crore from about Rs6,200 crore earlier. But when that was not accepted, the firm struck a deal with Binani Industries Ltd, the parent of Binani Cement, to buy its 98.43% stake in the cement unit, provided the insolvency case was terminated. On its part, Binani Industries approached NCLT asking that the case be terminated. At a hearing last week, Binani Industries told the tribunal that it will repay creditors within two weeks.

3. Why is this important?

UltraTech has struck this deal outside the bankruptcy framework. Striking a deal outside the framework, especially when the process is nearing completion, tests the sanctity of the code. If UltraTech wins, every unsuccessful bidder could approach the promoter and strike a deal to fund the repayment of the liabilities with the banks.

                    4. What does the law say?

The code itself does not have a procedure laid down for terminating the insolvency process. However, in another case last July, the Supreme Court ruled that a settlement can be considered and a case can be withdrawn after insolvency proceedings have started against a company. In that particular case, the company and its creditors had settled their dispute.

In Lokhandwala Kataria Construction Pvt. Ltd. Vs Nisus Finance and investment Manager case ,Supreme Court allowed settlement to be recorded between the parties even when the insolvency application had already been admitted and put quiet status under 142 of the Constitution.

5. What next?

The committee of creditors has indicated its willingness to consider the UltraTech-Binani Industries deal since it would entail a lower sacrifice on the lenders’ part. Its counsel had sought time till Monday to consider UltraTech’s offer. If the lenders do choose to accept the offer, the Kolkata NCLT will have to rule. An adverse ruling for Dalmia may prompt the consortium to approach higher courts. If the case ends up at the Supreme Court, its ruling could set a precedent for other cases. Expect the drama to continue.

Courtesy: Live Mint