The Insolvency and Bankruptcy Code, 2016 was envisaged as a complete code governing all matters relating to insolvency, incorporating the best practices across jurisdictions. However, certain concepts were to be introduced in a phased manner, given their complexity. One such concept was group insolvency, evident from the observations made in a 2018 report by the Insolvency Law Committee.
India’s first tryst with group insolvency came through judicial intervention by the National Company Law Tribunal (NCLT) in the insolvency of the Videocon Group. Relying upon US precedents, the NCLT ordered the substantive consolidation of the corporate insolvency resolution process (CIRP) of 13 Videocon Group entities in light of intricately connected business. Following this, several group insolvencies have seen arguments on consolidation, successfully or otherwise, including Lavasa, KSK Mahanadi and Adel Landmarks.
The global jurisprudence supports different frameworks to tackle the complexities of group insolvencies, ranging from procedural co-ordination (conduct of CIRP through a single insolvency professional and single administering court for administrative convenience) to substantive consolidation (treatment of the group as a single economic entity, negating the limited liability principle). The administering courts may often allow other hybrid measures within this broad spectrum.
The individualistic approach to CIRP of companies within a group brings inherent limitations, which consolidation can easily overcome to benefit all stakeholders in line with the objectives enshrined in the preamble of the code. In an isolated approach:
The benefits of consolidation also come with certain issues or challenges:
This article was originally published in Asia Business Law Journal on 24 January 2022 Co-written by: Anoop Rawat, Partner; Ahkam Khan, Associate. Click here for original article.
Contributed by: Anoop Rawat, Partner; Ahkam Khan, Associate
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