Bankruptcy code to be amended further, group firms to come under same NCLT bench
Amendments to the Insolvency and Bankruptcy Code may include a provision to ensure that bankruptcy proceedings of subsidiaries of the same company are referred to one bench.
More amendments to the Insolvency and Bankruptcy Code (IBC), including a provision to ensure that bankruptcy proceedings of the subsidiaries of the same company are referred to one bench of the National Company Law Tribunal, are in the works, top sources in the government have said.
“The amendment will also ensure that the same insolvency professional handles the insolvency proceedings of all the subsidiary firms of a company,” an official in the know of the matter said. He refused to be identified as he is not authorised to speak to the media on the issue.
This amendment is likely to be introduced in the budget session of Parliament.
The official added that the main purpose of this amendment is to ensure that there is no conflict of opinion and there is a holistic resolution for group companies.
Insolvency experts pointed to the case of Amtek Auto Ltd, where bankruptcy proceedings for the parent company and its subsidiary are pending at different benches of the tribunal.
“We believe that it is also in the interest of lenders if group companies are admitted before the same bench of NCLT, then drawing up a resolution package is easier. Through this, assets of a company can also be consolidated,” said the source quoted above.
The government has already appointed a committee to look into ways of strengthening the code. Sources said that this committee is looking into this proposed amendment.
“This is a global practice that insolvency proceedings in group companies should complement each other to make sure that there is a holistic resolution to subsidiaries of the same company. This change in the code will prevent different resolution professionals to lead to different directions while dealing with arms of the same parent company,” insolvency expert Sumant Batra said.
The government introduced an ordinance in November to amend the code to bar defaulting promoters from bidding for their own companies undergoing insolvency proceedings.
The ordinance followed concerns that promoters of insolvent companies were planning to reacquire their companies at discounts after lenders were forced to take haircuts on their loans.
The IBC came into force in 2016 and the first batch of 12 large defaulters was referred to their creditors by the Reserve Bank of India (RBI) in June 2017 for the launch of bankruptcy proceedings at the law tribunal. These 12 defaulters account for 25% of the total non-performing assets of the banks.