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. 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 The government now wants to set a clear cut-off time, after which a reference under the code cannot be withdrawn.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 bids have been invited.
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 Ltd 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.
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IBC committee chaired by corporate affairs secretary Injeti Srinivas had noted that there were instances of cases being withdrawn following a settlement reached between the debtor and applicant creditor.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.
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.
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.
The panel’s other suggestions include easing insolvency rules for small enterprises and providing relief for home buyers by treating them as financial creditors.
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