Page 55 - BANKING FINANCE February 2024

FEATURES

The logic behind group insolvency lies in situations where sparking conflicts of interest and fairness concerns.
the operations and supply chains among group members and Furthermore, there's a risk of heightened legal complexity,
interconnected. In such scenarios, enabling resolution as the law would need to navigate the intricate web of inter-
applicants to bid for multiple group companies in a single company relationships and liabilities.
offering could maximise the overall value.
"Balancing these competing interests is crucial for any group
Prashanth Shivadass, partner, Shivadass & Shivadass Law insolvency framework to be effective," Chandwani says. The
Chambers, stresses the need for group insolvency. "Given need for such a law arises from the increasing complexity
the extraordinary number of cases filed in different NCLTs of corporate structures and the need for an efficient
against the same group, the pooling of resources of this resolution mechanism that aligns with global insolvency
nature will be a welcome move, both for the authority and practices, she adds.
the applicants," he says.
How about drawing from frameworks existing globally?
Recognising the need for a framework addressing group There is, for instance, the UNCITRAL Model Law on
insolvency, the Insolvency and Bankruptcy Board of Indi Enterprise Group Insolvency. A committee on cross-border
(IBBI) had set up a working committee that gave insolvency resolution for group insolvency, headed by retired
recommendations on this crucial aspect of insolvency bureaucrat K P Krishnan, suggested that India refrains from
proceedings. adopting the UNCITRAL model due to its focus on cross-
border aspects. Instead, a flexible domestic group insolvency
In two reports, the IBBI proposed a phased implementation framework was proposed to be introduced in phases.
of a group insolvency regime in India, recommending a
voluntary and flexible process to be incorporated into the Among the various recommendations it made, the
Code. committee's report suggested that the group insolvency
framework under the IBC should only apply to corporate
The question is: Why has the IBC been unable to introduce debtors currently facing a corporate insolvency resolution
the code for group insolvency yet? process or liquidation process.

It was suggested that a broad and inclusive definition of
Government sources say there are various complexities
'group' should be formulated, based on significant
surrounding group insolvency that require attention. For
instance, companies initially involved in the formal group ownership, so as to include a large number of corporate
debtors within the framework.
insolvency process might belong to a domestic group, but
this could later evolve into a cross-border group insolvency
"There is a need to provide a framework within the Code
scenario.
itself to deal with group entities together for better value
maximisation, higher probability of revival, procedural and
The Ministry of Corporate Affairs has been in discussions to coordination convenience, and cost and time effectiveness,"
shape the contours of the group insolvency law framework says Abdullah Qureshi, associate partner, IndiaLaw LLP.
and is expected to provide clarity on the law soon.
Experts feel that without a legal framework in place,
Some weeks ago, IBBI Whole Time Member Sudhaker Shukla
challenges will persist - such as conflicts of jurisdiction,
indicated that India may simultaneously introduce group
defining the parameters of a group, ensuring the solvency
insolvency and cross-border insolvency frameworks. of group companies, aligning insolvency proceedings among
the group, and determining the approach towards managing
Collective interests vs individual rights foreign subsidiaries, among others.
Experts point to a challenge in group insolvency; balancing
the collective interests of the group against the individual To address these gaps and ensure fair valuation of stressed
rights of the entities involved. According to IBC experts, assets within group companies, clearly defined laws are
implementing a group insolvency law might complicate the essential, says Piyush Agarwal, associate partner a law firm
individual rights of companies within a group, potentially AQUILAW. (Refer to Business Standards)

BANKING FINANCE | FEBRUARY | 2024 | 49