Insolvency Resolution Now In Company Boardrooms? Government To Finalise Quick Rescue Mechanism For Bankrupt Firms

The NDA government at the centre will soon introduce a new corporate rescue framework that will facilitate quicker and cost-effective resolution of bankrupt companies, as reported by Mint. This option will facilitate the settlement of insolvency proceedings in the boardrooms of firms, instead of in courts.

Under this new framework, which has been adopted in countries like the US and the UK, parties to the process will be able to use ‘pre-packaged’ insolvency schemes instead of negotiating a new deal in court. Both, the shareholders of the companies and the creditors will approach the insolvency court with a pre-negotiated corporate reorganisation plan.

Thus, this will prevent further litigation in the insolvency process, and the court will only need to provide its stamp of approval to make the contract enforceable. Under the current Insolvency and Bankruptcy Code, 2016 (IBC), companies that are admitted into the NCLT (National Company Law Tribunal) for the insolvency process, are subject to litigation by different parties. This delays the process and asset value of such firms deteriorates rapidly.

It was earlier reported that delays in the IBC process have costed the lenders (mostly PSBs) around Rs 25,000 crores. But it has also addressed over Rs 3 lakh crore of stressed assets in the last two years.

“Pre-packaged resolution schemes are prevalent in developed insolvency jurisdictions. It can significantly reduce the time taken as well as the intricacies of the resolution process. However, this may require an amendment to the law,” said Sumant Batra, managing partner and head of insolvency practice at law firm Kesar Dass B & Associates.

Also Read: Govt Set To Overachieve Its Recovery Target Thanks To IBC