The Bill to amend the Insolvency and Bankruptcy Code (IBC), set to be presented in Parliament during the Budget session, may include provisions for the introduction of “group insolvency” norms, according to official sources.
To increase value maximisation of assets, reduce the workload of National Company Law Tribunals (NCLTs), and improve cost efficiency, there is a need to formally codify group insolvency norms, they said. Group insolvency refers to the process in which multiple companies under common management or ownership face insolvency issues simultaneously. For example, a default by one company in a group can trigger a cross-default affecting other companies within the same group.“This situation is typically complex due to the interlinkages between the entities, including shared assets, liabilities, and financial arrangements,” said Madhav Kanoria, partner, Cyril Amarchand Mangaldas.
Earlier this month, Insolvency and Bankruptcy Board of India (IBBI) chairman Ravi Mittal had underlined the need to formally introduce” group insolvency norms in the IBC, even as several such cases have been resolved by National Company Law Tribunals (NCLTs).
Experts say the Videocon insolvency case, completed in 2021, is a landmark case which boosted the jurisprudence for group insolvencies in India. By relying on principles laid down by US and UK courts, the NCLT, Mumbai ruled for consolidation of CIRP of 13 out of 15 companies of the Videocon group.
The Amrapali group, consisting of 40 firms was also treated singularly insolvent by the Supreme Court, due to the writ petition filed by homebuyers from various projects. And few other cases such as that of Lavasa Corporation, Jaypee Group and Sachet Infrastructure were dealt with in a similar manner.
Anjali Jain, partner, Areness said that NCLTs, to date, have only adopted a “sui-generis mechanism” for resolving group companies so far, due to the absence of a codified framework for consolidating the insolvency of entities within a group. “Since this fragmented approach overlooks the synergies and interdependence among group entities, it is high time for the formalisation of the group insolvency regime.”
In 2019, a report by the IBBI had recommended a framework for group insolvency, which is in line with the UNCITRAL Model Law on Enterprise Group Insolvency. Kanoria says, “The proposed framework is expected to enable information symmetry between the stakeholders of different companies leading to a better assessment of viability and chances of resolution.”
Siddharth Srivastava, partner at Khaitan & Co said that in lieu of the ever-expanding economic goals of India, it is pertinent that statutory principles are aligned with the global best practices so as to attract foreign investments and provide comfort to international creditors. “In light of the same, the international principles of group insolvency becomes all the more critical,” he said.