Page 31 - Banking Finance August 2024

ARTICLE

to be seen as a loan recovery instrument; it must be dragged into insolvency court. In the present IBC regime
construed as an instrument for preservation of economic (not having Group insolvency mechanism), the insolvency
value of assets through effective resolution in a unified and proceedings of companies A, B and C will be carried out
time bound manner. Hence, it is imperative that modern separately in NCLT Kolkata, New Delhi and Mumbai
weapons are added to the IBC armory in order to strengthen respectively. Entire procedure from filing of Application,
its capacity for speedy resolutions. appointment of Resolution Professional etc will be dealt with
separately. However, post introduction of Group Insolvency
At present, the insolvency regime takes up insolvency mechanism, the insolvency proceeding can happen in any 1
proceedings on individual entity basis i.e. each corporate NCLT. There is a scope of a common application being filed
debtor is treated as an individual entity and resolution is and one resolution professional handling the insolvency
done accordingly. However, there are a growing number of proceedings of all 3 companies under 1 adjudicating
cases wherein companies which are a part of same authority. Thus, the process becomes more synchronized.
corporate group come for insolvency resolutions. These
cases are dealt with in isolation in the absence of a Drawing inspiration from the situation mentioned above we
framework to have a common resolution for them. Issues can define Group Insolvency as a framework wherein if 2 or
related to interconnectedness of group companies have more business entities belonging to the same corporate
taken center stage in several insolvency proceedings. group becomes insolvent, their insolvency resolution can be
dealt with in one court in a manner such that several steps
Thus, a demand for a "Group Insolvency Resolution involved in the insolvency proceeding may be clubbed to
Framework" has been voiced by the stakeholders of the IBC bring in procedural simplification. The process may also
ecosystem. The government, on its part, has already done involve clubbing of the assets of the group companies and
its homework on the issue and if media reports are to be utilizing them in the best interest of the group corporate or
believed, the government plans to introduce group its debtors.
insolvency norms through amendments to the Insolvency and
Bankruptcy Code (IBC) in the near future. However, it is worth mentioning that clubbing of assets of
the individual companies is not always mandatory under
Against this backdrop, this article attempts to throw some group insolvency mechanism and the same depends on the
light on the various facets of the Group Insolvency type of group insolvency regime that a country has chosen.
Mechanism, the likely benefits of such a framework and the This leads us to the discussion of various facets of the Group
global legislations and cross border practices in this regard. Insolvency mechanism.
The article also highlights the various measures taken by the
government and the Insolvency and Bankruptcy Board of Facets of Group Insolvency Mechanism
India (IBBI) for evolving the Group Insolvency norms and the A quick scan of the global practices reveals that there are
likely features of the Group Insolvency mechanism to be two different models that may be adopted in cases of
introduced by the government.

What constitutes Group Insolvency?
Consider a situation wherein 3 companies say Company A,
Company B and company C having their registered offices
at Kolkata, New Delhi and Mumbai respectively are involved
in their independent line of business. These units are
separate legal entities but are interconnected in the sense
that these are associate companies of a common group. As
they are associate concerns, there are chances that there
is a certain level of interconnectedness. (Maybe they are
having related party transaction or combined assets etc.).

Now say companies A, B and C becomes insolvent and is

28 | 2024 | AUGUST | BANKING FINANCE