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The author is Director BW Businessworld Media Private LimitedMore From The Author >>
Maximising Settlements Under The IBC– CoC Successes Point To Improving Outcomes
As processes under the Insolvency and Bankruptcy Code evolve, the role of the Committee of Creditors (CoC) is becoming crucial in maximizing value. Recent successes in this aspect are an encouraging sign for the future
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The Insolvency and Bankruptcy Code in India has provided a dependable and structured platform for creditors to work together to facilitate effective recovery of dues. The Insolvency and Bankruptcy Code has brought in various provisions in place to improve the process of insolvency and bankruptcy. These include expedited proceedings and timelines, making it easier to resolve an insolvency case in an efficient manner. Additionally, the insolvency proceedings are overseen by a professional body, the Insolvency and Bankruptcy Board of India (IBBI) which provides additional oversight and a dispute resolution mechanism. Furthermore, creditors are provided with a secure platform called the Insolvency Resolution Process (IRP) which helps to streamline insolvency proceedings.
The IBC mandates a Corporate Insolvency Resolution Process (CIRP) which consists of a 180-day timeline to restart, restructure or close the business. Moreover, the payment of dues are prioritized in the order of workers, operational creditors and financial creditors. The Code also provides a framework for speedy resolution of financial collections, formation of regulatory committees, preferential treatment of secured creditors and regional insolvency advisors to assist with the proceedings. In addition, the IBC has a robust framework in place for conflict resolution through judicial proceedings.
The Committee of Creditors (CoC), which is constituted by the Insolvency Resolution Professional, forms the basis of this committee and plays a crucial role in the resolution of insolvency. The committee of creditors is responsible for placing resolutions before the creditors, negotiating debt repayment plans, reaching a consensus on turnaround strategies, and managing the restructuring of debt payments. This committee is chiefly responsible for ushering in successful resolution of insolvency proceedings and protect the interests of the creditors.
The committee is responsible for providing information and documents to the Insolvency Resolution Professional to aid in the assessment of the insolvency resolution plans. It is also responsible for monitoring the progress of the insolvency resolution proceeding and holding the Insolvency Resolution Professional accountable for his actions. Additionally, the it also assists the creditors in identifying irregular transactions and fraudulent activities. The committee of creditors must strive to act in the best interests of all creditors, ensuring that the resolution of the insolvency proceeding is conducted in a fair, ethical, and transparent manner.
The ultimate aim of the CoC is ensuring that all creditors receive their due share and that any decisions taken by the Insolvency Resolution Professional are fair and in the best interest of all the creditors. The committee of creditors must also ensure that the resolution process is not prejudiced in any way and take timely action in case of any default by the Insolvency Resolution Professional. It is also responsible for advising the creditors on issues related to insolvency resolution including the implementation of any resolution plans and the availability of support schemes provided by different bodies.
In the recent past we have seen that the CoC in various cases have taken actions or measures to enhance or increase the settlement amount under the Insolvency and Bankruptcy Code. Such actions have included but are not limited to: (1) initiating a sale or winding up of assets and contracts; (2) negotiating improved terms with creditors; (3) restructuring debt obligations; and (4) participating in restructurings and claims settlement negotiations. These actions taken by the CoC in consultation with the Insolvency Resolution Professional and other creditors, have in multiple cases resulted in an enhanced settlement amount as the table below illustrates:
The CoC in multiple cases has negotiated with the creditors for improved terms which has resulted in them to receiving a better settlement amount. Measures have included grant of time extensions, additional security guarantees and modifications to existing contracts or agreements. The CoC has taken steps in cases to secure the best possible price where the assets and contracts of the insolvent firm are sold or wound up. Additionally, the CoC has also at times actively participated in restructuring processes, aiming to secure a better settlement amount.
However, while there have been some great examples of success, the IBC still has room for improvement. The process can be improved by introducing provisions that better address the financial needs of stakeholders, simplifying the resolution process, and empowering creditors and other stakeholders to better negotiate and resolve disputes. Additionally, introducing a more efficient and transparent dispute resolution mechanism could help in making the process smoother and allow for quicker resolutions.
Making the resolution process more flexible could also benefit stakeholders by allowing for more efficient and cost-effective resolutions. For example, allowing for alternative financing options, like debt restructuring, can help reduce the burden that stakeholders must bear when resolving cases. Additionally, introducing better procedures for collecting information from stakeholders could help reduce the time needed to resolve disputes. Finally, introducing pre-emptive mechanisms, such as early warning systems, could help alert stakeholders to potential issues before disputes arise, thus preventing delays and costly litigation.