Changes in IBC will allow provision for mediation to cut costs, time | Business Standard News

Mediation, part of an alternative dispute resolution, is well established as an effective means of settling matters in bankruptcy cases in the US

The government is planning changes in the Insolvency and Bankruptcy Code (IBC) to insert a provision for mediation to cut costs and the time taken to resolve cases.

The review of the IBC will enable the government to put in place a mechanism for pre-packaged resolution, an individual bankruptcy scheme, and use of artificial intelligence.

Though there is a time stipulation of 180 days, and can be extended by another 90 days for resolution to complete after a case has been admitted by the National Company Law Tribunal (NCLT), timelines are not strictly adhered to.

For instance, the Essar Steel resolution is pending, though it has been more than 600 days since the case was first admitted by the NCLT. The matter is pending with the National Company Law Appellate Tribunal (NCLAT).

Also, it takes about a month for the NCLT to admit or reject a case after it is filed.

To overcome this, the government is considering a mediation mechanism, prevalent in foreign jurisdictions, particularly the US.

A senior official of the Insolvency and Bankruptcy Board of India said: “Did the timeline work in the corporate insolvency set-up? Can costs be cut? These are things we are trying to analyse in remodelling the code.”

Mediation is a process of resolving disputes through discussion, moving out of the loop of allegations and counter-allegations, and assessing where interests lie. Options for settlement are explored and a settlement is worked out through joint evaluation.

A neutral person called the mediator manages the process. She or he may evaluate the disputes and weigh in on options for settlement, but has no authority to impose one.

Mediation, part of an alternative dispute resolution, is well established as an effective means of settling matters in bankruptcy cases in the US.

The use of mediation to enhance the possibility of business restructuring in the face of financial distress or the success of ongoing court insolvency proceedings is increasing worldwide.

Insolvency lawyer Sumant Batra said, “Mediation is a well-established concept in the US and other jurisdictions and has been found to be effective both in resolving contentious issues and saving time. It has a greater purpose to serve in India due to the number of cases and stakeholders.”

The Supreme Court last year initiated a debate on ways to prevent delay in insolvency resolution.

A Bench of Justice R F Nariman and Justice Indu Malhotra had taken note of the fact that the IBC provided for a time-bound disposal of the resolution process meant to revive a company, but delays and several rounds of intervention by authorities like the NCLT and NCLAT defeated the purpose of the statute. “Make the Act (the Insolvency and Bankruptcy Code) work, otherwise everything will go for a six,” the Bench had said.

Official sources said they would use the experiences in the corporate insolvency regime to frame personal insolvency provisions.

Here also, mediation plays an important role.

When Lehman Brothers had filed the largest ever bankruptcy in 2008, it requested an Alternative Dispute Resolution as a means of saving time and cost in its Chapter 11 case.

Chapter 11 deals with the United States Bankruptcy Code. Later, Judge Peck had agreed that mediation could be used for certain derivative contracts in the Lehman bankruptcy.

Sources said just as in the case of corporate insolvency, an insolvency professional would be helping the individual find a resolution.

Also, the government is assessing the code to come up with pre-packaged insolvency resolution. It has invited comments on this. The concept of pre-packaged resolution gained currency within the government after the insolvency process started getting caught up in litigation.

The scheme will typically allow a stressed company to prepare a financial reorganisation plan with the approval of at least two-thirds of the creditors before filing an insolvency application by any party at the NCLT.

At present, the debtor company, its financial creditors or the operational creditors can move the NCLT to initiate insolvency proceedings and find a resolution and ways of repaying loans. The IBC was created in 2016 to find a solution to bad loans.

Recovery mode

  • The concept of pre-packaged resolution gained currency within the government after the insolvency process started getting caught up in litigation
  • The scheme will typically allow a stressed firm to prepare a financial reorganisation plan with the approval of at least two-thirds of the creditors before filing an insolvency application by any party at the NCLT

via Changes in IBC will allow provision for mediation to cut costs, time | Business Standard News

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s