INDIA Law and Practice Contributed by: Divyanshu Pandey, Utsav Johri, Sucheta Bhattacharya and Nishal Makharia, JSA Advocates & Solicitors
7.3 Length of Insolvency Process and Recoveries A CIRP is required to be completed within 180 days from the date the application under IBC is admitted by the National Company Law Tribunal (NCLT) having jurisdiction, but it may be extend - ed by a further 90 days or in certain exceptional cases, based on the approval of the committee of creditors. However, in some cases, the CIRP process has taken much longer due to the com - plexities involved and multiple litigations. Insolvency resolution under IBC inevitably results in sale of the company to a bidder, but IBC stipulates debt restructuring (which is not a favoured option). In some cases, there are hair - cuts in the debt outstanding. For private credit players, IBC is an effective mechanism. 7.4 Rescue or Reorganisation Procedures Other Than Insolvency Outside IBC, the Reserve Bank of India (Pru - dential Framework for Resolution of Stressed Assets) Directions, 2019, dated 7 June 2019, allows for the rescue or reorganisation of a bor - rowing entity. A scheme or arrangement is also available but is not widely used given the time it When a borrower is admitted into a CIRP, a moratorium is imposed on the borrower and its assets. Following this, all financial creditors are required to participate in the CIRP as per the provisions of IBC. Key decisions in a CIRP, including the approval of a resolution plan, require the consent of at least 66.6% of financial creditors by value, and such decisions are binding on all stakehold - ers. Consequently, lenders with minimal voting takes to effect in Indian courts. 7.5 Risk Areas for Lenders
On the initiation of a corporate insolvency reso - lution process (CIRP), which can be initiated by a financial creditor, an operational creditor (ie, sundry creditors) or by the borrower itself, a moratorium is imposed. During the moratorium, secured creditors are not allowed to enforce/sell the relevant assets given as security and seek the repayment of monies due and payable. The insolvency process is a creditor-controlled regime. An insolvency resolution professional (IRP) administers the process and acts on the instructions of the financial creditors. 7.2 Waterfall of Payments The payment of creditors is determined under Section 53 of IBC. The priority will depend on whether the creditor is secured or unsecured (as set out below), with the payment waterfall under IBC being as follows: • cost of the CIRP; • workmen dues (pending for a period of 24 months prior to commencement of liquida - tion) and debts owed to secured creditors who have relinquished their security; • wages and any unpaid dues owed to employ - ees other than workmen for the period of 12 months prior to commencement of liquida - tion; • debt owed to unsecured creditors; • any amount due to the central or state gov - ernment, and pending debt owed to secured creditors who have enforced the security; • remaining debts and dues; • preference shareholders, if any; and • equity shareholders of a company or partners of a partnership firm.
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