27 July 2019: The insolvency regulator has notified rules that will give promoters and other stakeholder 90 days after the commencement of insolvency proceedings to re-take control of the company through agreements with creditors. The new rules also specify a limit of one year for the liquidation of such a company from the date of commencement of insolvency proceeding.
As many as 378 companies with total creditor claims of Rs. 2,57,642 crore have been sent into liquidation under the Insolvency and Bankruptcy Code till March 31, 2019.
“Where a compromise or arrangement is proposed under Section 230 of the Companies Act … it shall be completed within ninety days of the order of liquidation under subsections,” an Insolvency and Bankruptcy Board of India (IBBI) notification said.
Section 230 of the Companies Act allows for promoters or any class of creditors of a company to reach a compromise or arrangement with other stakeholders of the company to take control of the company.
Experts said this should provide a reasonable opportunity to stakeholders to reach a compromise or arrangement with stakeholder.
“Three months is a reasonable amount of time. The government is aiming to squeeze the timeline. If it is possible to complete the insolvency resolution process, including litigation, within 330 days then 90 days is a very reasonable amount of time for any scheme or arrangement,” said Manoj Kumar, head of M&A and Insolvency at legal firm Corporate Professionals.
The notification also mandates that a company must be liquidated within one year of commencement of liquidation proceedings. However experts have pointed out that achieving this goal may be unrealistic in cases where there are legal disputes surrounding assets especially like land and buildings.
“The lawmakers’ intention is to finish litigation within one year, but if certain assets are not liquidated in this time and there are costs associated with litigation over certain properties then from where will the liquidator realise those costs if proceeds from liquidation with one year have already been distributed?” questioned Kumar.