The Insolvency and Bankruptcy Board of India (IBBI) proposes to make the legal regime around withdrawal of resolution applications under the Insolvency and Bankruptcy Code (IBC) more “practical”. This, in turn, will give the original promoters a wider opportunity to seek resolution outside the IBC process and thereby gain back control of their companies.
Plans are afoot to change the norms around withdrawal of resolution applications under Section 12A of the IBC to the effect that application for withdrawal may be allowed in ‘exceptional cases’ even after invitation of expression of interest. The insolvency regulator proposes to make a change to this effect in the Corporate Insolvency Resolution Process (CIRP).
Currently, no application for withdrawal of resolution application is allowed once the expression of interest has been invited. This had proved to be a hurdle for many defaulting promoters — who found themselves ineligible under Section 29A — in using the Section 12A route to retain control of their companies wherein the IBC process had triggered.
Punit Dutt Tyagi, Executive Partner, Lakshmikumaran & Sridharan, a law firm, said: “ I see the latest IBBI proposal on changes in Section 12A as a relaxation in favour of the original promoters, as it opens a slightly bigger window for the original promoter to seek resolution outside the IBC.
“So long as the voting share of the CoC (Committee of Creditors) is maintained at 90 per cent, I don’t see any harm, as it will ensure maximisation of assets. Any relaxation in the voting share may not be in the interest of small players in the CoC.”
Tyagi also expressed hope that the IBBI would also come out with some guidelines to be followed by the CoC instead of leaving it completely to the CoC’s discretion.
“I assume the ‘exceptional circumstances’ referred to in the proposed change will be somewhere between the period after inviting the EOI and till the time the resolution application is accepted by the CoC, as till such time, no party can claim accrual of any rights in its favour,” Tyagi added.
Aseem Chawla, Managing Partner, ASC Legal, a law firm, said the recognition of amending the insolvency regulations to consider withdrawal of application under Section 12A in situations where an EOI has been invited would ultimately assist the existing promoters if they are able to demonstrate that exceptional circumstances for withdrawal that will favour all stakeholders exist.
Saurav Kumar, Partner, IndusLaw, another law firm, said the proposed changes will ensure that there are more interested bidders under the code.
He said that there should generally be no issues in withdrawal of petition where there is a private deal between the bankers and a prospective buyer.
“Of course, most times, the bankers would agree to such a withdrawal only when they see some value maximisation. However, the bankers should not be allowed to withdraw in order to circumvent the provisions of 29A or to entertain another buyer after the timeline has elapsed,” he said.
Source: Hindu Business Line, May 10, 2019