The present articles aims to present a comprehensive analysis over the concept of voluntary liquidation of corporate entities in India along with highlighting the relevant provisions of law. In doing so, it also presents a jurisprudential aspect of the concept based on the judicial pronouncements.
Limited Liability Partnership (Amendment) Bill, 2021 Limited Liability Partnership (Amendment) Bill, 2021Download
Report of the Insolvency Law Committee on Pre-Packaged Insolvency Resolution Process - July, 2021 Click here to download in PDF Report of the Insolvency Law Committee on Pre-Packaged Insolvency Resolution Process-July, 2021Download
In some cases, the Liquidators have reportedly issued notice to the EPFO for participation in the stakeholders’ consultation committee meeting, treating them as operational creditors or Government agencies. In general terms, almost everyone associated with the Corporate Debtor is considered a stakeholder. However, Section 2(k) of the IBBI (Liquidation Process) Regulations, 2016 provides for a definition of the term ‘stakeholder.’ It reads, “stakeholders” means the stakeholders entitled to distribution of proceeds under section 53. This gives rise to a larger question: Does the EPFO come within the meaning of ‘stakeholder’ for the I & B Code and the connected liquidation process? This article is intended to address this concern.
With the coming into force of the Insolvency and Bankruptcy Code, 2016, the existing Insolvency Regime in India faced a major overhaul. The already existing Statutes for instance the SARFAESI Act, 2002, RDDBFI Act, 1993 etc. had several loopholes and were severely criticized for reasons including it to being debtor centric, time consuming and being rigid statutes. On the completion of over five years of the IBC, 2016, the Statute can still be said to be at a nascent stage with new Judicial Interpretations coming in. One such very engrossing question of law included whether the unsatisfied claims of the Creditors after the final acceptance of the Resolution Plan by the Committee of Creditors would still be an eligible ground to initiate legal proceedings against the new form of Corporate Debtor? The accompanying short Article aims to analyse this position of Law in light of the Judicial Rulings on the same.
This decision is significant because it treats financial creditors and investors as mutually exclusive categories, which effectively means that an investor (who structures its investment using debt instruments) cannot also be a financial creditor and cannot therefore avail itself of the enforcement mechanism and remedies available to a financial creditor under the IBC. Moreover, it would also mean that such an investor would feature at a lower rung of the waterfall if the company went into liquidation. Neither of these is a desirable outcome and if this proposition is upheld by higher authorities, it may cause investors to rethink the terms on which they participate in investments.
Under insolvency and bankruptcy code 2016, the Creditors of the company play a very important role in the regime of insolvency. The Committee of creditors has been vested with great powers and responsibilities, which further leads to the resolution of a company under distress. The creditors shall take absolute control of the management of the corporate debtor, with the authority to take important decisions and negotiate the resolution plans, also the committee of creditors eases the financial risk in a company. Nonetheless, the Committee of Creditors is further entrusted with commercial wisdom, which empowers them to take the most crucial decisions regarding the fate of the company. The Committee of creditors is considered to be the headliner to the resolution process. By handing such powers to the creditors of the company, the impact of creditor-in-control model management promises the likelihood of a stronger bankruptcy regime.
The author has identified top five judgments of the year 2021 delivered by the Supreme Court of India each from the month of January to May, concerning the Insolvency and Bankruptcy Code, 2016. These rulings of the Apex Court will have far reaching consequences and undeniably serve as precedents in the world of insolvency.
The Insolvency and Bankruptcy Code (Amendment) Bill, 2021, that seeks to replace the Ordinance, inter alia, provides for— (a) specifying a minimum threshold of not more than one crore rupees for initiating pre-packaged insolvency resolution process; (b) disposal of simultaneous applications for initiation of corporate insolvency resolution process and pre-packaged insolvency resolution process, pending against the same corporate debtor; (c) inserting a new Chapter III-A containing sections 54A to 54P to facilitate pre-packaged insolvency resolution process for corporate persons that are Micro, Small and Medium Enterprises; (d) penalty for fraudulent or malicious initiation of pre-packaged insolvency resolution process or with intent to defraud persons; (e) penalty for fraudulent management of corporate debtor during pre-packaged insolvency resolution process; (f) punishment for offences related to pre-packaged insolvency resolution process; and (g) certain amendments to the relevant provisions, which are consequential in nature.