What is meant by group insolvency? Are the entities in India ready for the process of group insolvency? Explain in the context of Insolvency and Bankruptcy Code. (200 Words)
Refer - Indian Express
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IAS Parliament 4 years
KEY POINTS
Group company insolvency shall lead to information symmetry amongst stakeholders and cost effectiveness of insolvency proceedings.
Information Sharing: EU and UNCITRAL insolvency regimes mandate insolvency professionals to communicate information and restructuring plans for companies.
· The working group has also recommended that IPs, committee of creditors and adjudicating authorities should be mandated to communicate insolvency proceeding(s) information to reduce duplicating efforts.
· Group Coordination Proceedings: Insolvency regimes around the world postulate appointment of group coordinator to supervise the effective implementation of group insolvency proceedings.
Indian context
· There have already been cases, where courts have felt the need of group insolvency for maximisation of asset value of companies and have thereby used their inherent powers to initiate group insolvency of such companies.
· In the case of Venugopal Dhoot v. SBI, there was a consolidation of insolvency proceedings of multiple Videocon companies.
· Therefore, there is a crucial need for a legislative framework within the Code for Group Company insolvency
· Further, implementing a group insolvency framework has various challenges. The term “commercial understanding” in the definition of Group Company, as recommended by the report, is vague and may lead to an incongruous interpretation leading to flood gates of frivolous applications before the adjudicating authority, thereby delaying proceedings and clogging of judicial infrastructure.
· Therefore, to avoid any hurdle, IBBI should frame a holistic definition of group company, to include all companies that are intrinsically linked either by horizontal integration (cross-ownership) or by vertical integration (layers of parent and subsidiary companies).
· The adjudicating authority, before initiating group insolvency proceedings, will have to satisfy itself of the inter-linkage between associate companies,
· This is in derogation of the principles of maximisation of assets envisaged in the preamble of the code. Nonetheless, the time seems right to further fortify the code by adding provisions to aid group insolvency of companies.
