Govt said to mull relaxing bankruptcy deadline as lawsuits mount - Hindustan Times
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Govt said to mull relaxing bankruptcy deadline as lawsuits mount

Shruti Srivastava and Candice Zachariahs, Bloomberg | By
Mar 22, 2018 05:41 PM IST

A panel set up to recommend ways to ease implementation of the bankruptcy law is proposing that timeline be eased on a case-by-case basis at discretion of NCLT

The government may allow more time for the restructuring plans of defaulting companies to be approved, according to people with knowledge of the matter, as a slew of lawsuits from owners, lenders and bidders slows the insolvency process and tests a new bankruptcy law.

Rules under the country’s new Insolvency and Bankruptcy Code (IBC) mandate that a bad-loan resolution plan must be agreed upon within 270 days, failing which they require liquidation of the company’s assets.
Rules under the country’s new Insolvency and Bankruptcy Code (IBC) mandate that a bad-loan resolution plan must be agreed upon within 270 days, failing which they require liquidation of the company’s assets.

Rules under the country’s new Insolvency and Bankruptcy Code (IBC) mandate that a bad-loan resolution plan must be agreed upon within 270 days, failing which they require liquidation of the company’s assets. A panel set up to recommend ways to ease implementation of the law is proposing that the timeline be eased on a case-by-case basis at the discretion of the National Company Law Tribunal, the people said, asking not to be identified as they are not authorized to speak publicly.

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The country’s fledgling insolvency process has come under increased scrutiny after the RBI last year ordered 12 of the largest debtors to go through bankruptcy tribunals and then, in February, whittled down bad-debt resolution methods to one: if banks can’t fix a sour loan in 180 days, it will be referred to the court. The nation is struggling to unwind about $210 billion of soured loans that have weighed on lending growth and investment.

But as the first few attractive assets wend their way through proceedings, the decisions of court-appointed resolution professionals and creditors have increasingly being challenged.

Here are some of the other suggestions being made:

  • Reducing the share of creditors required to approve insolvency resolution plans to 66% from 75%
  • Home buyers, who are at risk of being left without a home after developers go into bankruptcy proceedings, may be made part of the committee of creditors
  • Suggestion was also made to add a provision allowing assets of companies in bankruptcy proceedings to be sold in parts
  • May allow promoters of micro, small and medium-sized companies some relaxations that will allow them to bid for assets in bankruptcy proceeding

The discussions on which rules to relax are ongoing and a final view on the suggestions is yet to be taken, the people said. An email sent to a spokesman for the Ministry of Corporate Affairs wasn’t answered.

The government will probably move an amendment to the bankruptcy code in the ongoing session of Parliament, based on the panel’s recommendations.

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