Govt to hold wider consultation for group, cross-border insolvency rules

Introduced through legislative amendments in April, these two ambitious provisions form part of the most comprehensive overhaul of the Insolvency and Bankruptcy Code (IBC) since its enactment in 2016. The amended legislation received presidential assent on 6 April..

Most provisions in the amended Code, which seek to improve the efficiency and outcomes of debt resolution of companies and their promoters, will be notified at the earliest but the schemes for group insolvency and cross-border insolvency may be rolled out only after further consultations, said the first of the two persons quoted above, both of whom spoke on the condition of anonymity. These two new schemes are complex and add new dimensions to IBC, said this person.

At present, the central government is consulting the UN on adapting its model of group and cross-border insolvency frameworks to India’s requirements and pattern of litigation seen in the past for optimum efficiency. Rules for these schemes will be notified only after they are tabled in both the houses of Parliament and will include any modification Parliament recommends, said the second person.

Queries emailed to the spokesperson for corporate affairs ministry on Friday remained unanswered till press time.

Experts pointed out that group insolvency regime will seek procedural coordination of debt resolution of multiple entities within the group, rather than a substantial pooling of the insolvency estate of group companies. Insolvency or liquidation estate refers to the collective pool of a corporate debtor's assets used to pay off creditors.

“The group insolvency mechanism is expected to prioritize a coordinated process over blanket substantive consolidation. This approach should help synchronize proceedings for related companies under stress, protect overall business value, and prevent contradictory orders, while still maintaining the distinct legal identity and creditor interests of each entity,” explained Anoop Rawat, national practice head, insolvency & restructuring, projects, banking and finance at law firm Shardul Amarchand Mangaldas & Co.

“It will take some time for these provisions to be effective since the rules relating to group insolvency provisions would be required to be approved by both Houses of the Parliament, but there is enough preliminary guidance available for the stakeholders to factor in these aspects as proposed in the amendment act,” said Gang. This guidance relates to common committee of creditors (CoC), common adjudicating authority and common resolution professional to deal with defaulting entities having complex group structures and a web of companies meant to hide real assets and the value, he said.

Cross-border insolvency requires coordination of courts, professionals and creditors in multiple jurisdictions and entails a lot of groundwork to be done.

The effectiveness of the proposed framework will depend heavily on urgent capacity building within the adjudicating authorities, added Rawat of Shardul Amarchand Mangaldas & Co.

National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) benches must be equipped with the training and infrastructure to manage recognition of foreign insolvency actions, understand the nuances of multi-jurisdictional insolvency action, facilitate judicial cooperation across borders, and resolve intricate jurisdictional questions without delay, Rawat said. “Without these measures, the objectives of speed and certainty may be compromised,” added Rawat.

Gang, the partner at Grant Thornton Bharat, said diplomacy and dialogue are required with foreign jurisdictions for recognizing India’s needs relating to assets of Indian defaulting companies situated overseas and mutual recognition would be the key theme for cross-border insolvency rules to be notified after approval by both houses of the Parliament.

According to Rawat, the impact of the two schemes will depend on regulations and institutional preparedness.