IBC review likely to keep promoters out – The Economic Times

Clipped from: https://economictimes.indiatimes.com/news/economy/finance/ibc-review-likely-to-keep-promoters-out/articleshow/83223260.cmsSynopsis

The government will examine the Insolvency and Bankruptcy Code (IBC) to stop defaulting promoters from wresting back control of companies by exploiting apparent loopholes.

The government will examine the Insolvency and Bankruptcy Code (IBC) to stop defaulting promoters from wresting back control of companies by exploiting apparent loopholes. This follows developments in two high-profile cases – Siva Industries and Holdings Ltd and Dewan Housing Finance Corp. Ltd (DHFLNSE 4.99 %).

The government is likely to conduct its review in consultation with the Insolvency and Bankruptcy Board of India (IBBI), said a senior government official. It’s looking at Sections 12A, which provides for withdrawing IBC cases if 90% lenders agree, and 29A, which bars defaulting promoters and related parties from the resolution process, the person said.

“Some erring promoters look to exploit this particular Section 12A by ensuring enough legal hurdles so that there are inconsequential bids, thus leaving lenders with little choice,” said the official.

DHFL, Siva Industries cases in focus
“We will look to close that gap,” the official added. Siva Industries and its lenders agreed to a one-time settlement (OTS) of ₹500 crore against outstanding debt of ₹5,000 crore after lenders decided to withdraw bankruptcy proceedings on failing to find a buyer.

22

“The promoter/shareholder made a one-time settlement offer which was higher than the liquidation value. Creditors voted in favour of the settlement in the first week of April 2021,” IDBI Bank had said in a statement, adding that the National Company Law Tribunal (NCLT) is yet to approve the settlement.

In the DHFL case, erstwhile promoter Kapil Wadhawan made a surprise offer of more than ₹91,000 crore after the ₹34,250 crore bid by Piramal Enterprises had already been approved by the Reserve Bank of India (RBI) and the Competition Commission of India. The Mumbai bench of the NCLT asked the committee of creditors to consider the offer last month.

On an appeal by the administrator, the National Company Law Appellate Tribunal (NCLAT) stayed the order, saying there would be no end to bankruptcy proceedings if such a reversal was allowed.

Wadhawan has approached the Supreme Court against the NCLAT stay. The Centre will watch these two cases before taking a call on changes in the law.

The government had introduced Section 29A to bar promoters of defaulting corporate entities and related parties from offering a resolution plan during insolvency proceedings. The fear of losing their companies once insolvency proceedings are initiated has forced many promoters to settle defaults with banks, helping resolve bad loans.

Another government official said that Section 29A doesn’t operate in a silo and the government may issue a clarification to that end.

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