Challenges in Insolvency Proceedings
Saurav Panda
Principal Associate, Shardul Amarchand Mangaldas
Salient Features of IBC
• Key Objectives
‒resolution of corporate debtor as a going concern
‒time bound resolution process
‒maximization of value of assets for benefit of all stakeholders
‒resolution process not a recovery mechanism
• Initiation by a financial creditor or operational creditor or voluntarily – threshold of INR 1 crore
• Imposition of a moratorium – a calm period statutorily provided till approval of a resolution plan
or order of liquidation
• Creditor in control regime: powers of board of directors suspended - RP/IRP take over
management and control
• Binding resolution plan approved by CoC and thereafter the NCLT – commercial wisdom of the
CoC is supreme
Status of cases under IBC
TOTAL 3312 ADMITTED CASES UNDER IBC
(Source: IBBI)
Ongoing CIR Process 1961
Liquidation 780
Resolution 190
Withdrawn under Section 12A 135
Closed on appeal/review/settlement 246
0 500 1000 1500 2000 2500
General challenges faced under IBC
framework
• Adherence to timelines prescribed under the IBC
‒Timeline for admission of application for initiation of CIR Process
o Statutorily 14 days to admit or reject by NCLT - normally takes 3-4 months
o Mandatory to record reasons for delay beyond 14 days
‒Timeline for completion of CIR Process
o Initially 180+90 days for completion of CIR Process - extended maximum period to 330 days (including litigation)
o Exclusions of time - principles set out in Quinn Logistics
o SC in Essar Steel held - 330 days timeline directory and not mandatory
‒Negative impact of delay in process
o Erosion of asset value
o Cash liquidity challenges
o Liquidation value being outdated
o Inflation of the CIRP costs leading to reduced recoveries for the creditors
General challenges faced under IBC framework
• Moratorium and its enforcement
‒Sometimes Government authorities – tax, electricity, land revenue etc do not appreciate the import of the
IBC and the moratorium
‒Delay in filing of claims by Government authorities
• Implementation of a Resolution Plan
‒no timeline for disposal of an application for resolution plan approval
‒lack of guidance on the re-negotiation or retraction/ withdrawal of a plan that has been approved by
CoC
‒circumstances that warrant running a renewed process for re-consideration of a resolution plan upon the
originally approved plan having failed during implementation.
• Group insolvencies under the IBC
‒IBC does not have any provisions for insolvency of groups / conglomerates – jurisprudence developing
basis case laws
‒IBBI formulated Working Group on Group Insolvency
‒Examples of group insolvencies – Videocon group companies; Lavasa group companies, Adel group
companies
General challenges faced under IBC framework
• Cross-Border insolvency under the IBC
‒Provisions related to Cross-border insolvency in the IBC not yet notified.
‒ILC recommends adoption of the UNCITRAL Model Law with some alterations
‒First case recognizing foreign proceedings – Jet Airways
• Alignment of IBC with other laws and exemptions
‒Corresponding relaxations and exemptions in other legislations – appropriate safeguards /
exemptions not incorporated under taxation laws, Companies Act, PMLA, etc. for an insolvent
company
‒Protection required during the period post approval of resolution plan
• Treatment of contingent liabilities under resolution plan
‒Different treatment for contingent liabilities under resolution plans
‒Challenges in crystallizing a disputed liability in litigation – continuation of litigations and possibility
of the liability re-emerging defeats the objective of resolving the stress of companies vide a
resolution plan
General challenges faced under IBC framework
• Withdrawal of resolution plan
‒ IBC provides under Section 31 for the resolution plan to be binding on all stakeholders involved in
the process upon approval by the NCLT
‒can a resolution plan be directed for specific performance?
‒approval by NCLT can take long; commercial feasibility may change in the interim. Can the
resolution plan be withdrawn after CoC approval?
• Balancing process sanctity with IBC’s objectives
‒Interplay between the process timelines and the objective of maximization of value - dealing with
late bidders and expressions of interest while ensuring fairness of process
‒Claim verification process – do the creditors have a right of audience before the RP or CoC prior
to verification of claims?
‒RP’s role being to accept claims of creditors, and admit and verify the same, and role being of
administrative nature, principles of natural justice will not apply – Ultratech Nathdwara Cement
Limited v. Union of India & Ors
• Challenges in large creditors CoC
‒Limited ability for large creditors represented through Authorised Representative to voice their
views and negotiate resolution plans
‒Limited awareness amongst retail investors / homebuyers on IBC nuances
Key challenges faced by
the Resolution Professional
Cash liquidity issues and
Lack of cooperation by
challenges of obtaining
the erstwhile management
interim finance
Challenges posed due to
Practical challenges in ongoing legal
ensuring compliance with proceedings and creditors
applicable laws seeking payments during
CIRP
Risks of resolution
professional post
resolution plan approval
Key challenges faced by the Committee of Creditors /
creditors
Delay in the CIR process Lack of concurrence in
causes delays in CoCs with dynamic Payment to dissenting FCs
recoveries constitution
Limited ability to enforce
Payment of OCs under the Potential conflicts between
specific performance of
resolution plan RAs and CoC
resolution plans
Key challenges faced by the Resolution Applicant
Stringent eligibility Time taken for
Due diligence of the
criteria under Section approval of the
corporate debtor
29A resolution plan
Treatment of ongoing Protection from Possible interference by
attachment of assets of
litigations, contingent courts on commercial
corporate debtor or
claims, statutory dues criminal liability being aspects of the
etc imputed resolution plan
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