According to a set of code of conduct for the committee of creditors (CoC) established by the Insolvency and Bankruptcy Board of India (IBBI), lenders overseeing the accounts of insolvent enterprises cannot recover their dues from the earnings of these companies while efforts are made to put together a rescue package.
The panel of creditors in charge of the failing company during the bankruptcy resolution process, according to IBBI, shall uphold the prohibition on debt collection during this time.
IBBI proposed in the draught code of conduct released for public comment last Friday that creditors who maintain the accounts of the corporate debtor (the defaulting company) "shall not adjust the receipts of the corporate debtor during the corporate insolvency resolution process for past due in violation of moratorium."
Varrsana Ispat Ltd (VIL), which was listed by IBBI as a company that purportedly experienced this predicament, did not respond to emailed requests for comment at the time of publication.
The National Company Law Tribunal has condemned the panel of creditors' behaviour in several other areas, according to the bankruptcy rule writer (NCLT). This includes an alleged case of a corporate rescue plan approved by a panel of creditors being rejected by the tribunal as a "ploy" to allow those who drove the company to bankruptcy to reclaim control. In another case, the resolution professional allegedly included the expense of the lender's legal counsel in the bankruptcy resolution procedure.
“The code of conduct will undoubtedly help, but how well it will be implemented, given NCLT's massive capacity deficit, is an open question. "The NCLT has a huge backlog of cases," MDP & Partners, Advocates & Solicitors managing partner Nishit Dhruv remarked.
IBBI has also suggested improvements to the auction process, such as limiting the number of amendments to the request for resolution plans to two. The proposed guidelines for the auction process are designed to ensure that the bankruptcy code's strict timelines are followed. According to the regulator, this would help instil trust in the process among stakeholders.
The intention to revise the bankruptcy rule comes after the parliamentary standing committee on finance, chaired by BJP leader Jayant Sinha, urged for a review. Sinha's panel told Parliament earlier this month that lenders were taking 95 percent haircuts and that more than 71 percent of cases have been languishing for more than 180 days, indicating a departure from the code's basic goals.
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