Insolvency and Bankruptcy Board of India jointly with the State Bank of India (SBI) and Indian Banks' Association (IBA) organises a One-day Workshop (in Hybrid mode) for Bank Officers titled "Committee of Creditors: An Institution of Public Faith" on 21st July, 2022 (Thursday) at Mumbai.
It is normal for a firm to have stress in a market economy. Such stress, however, needs to be addressed expeditiously in an orderly manner. The Insolvency and Bankruptcy Code, 2016 (Code) envisages a market mechanism to address this situation swiftly.
The Code recognises that a limited liability firm is a contract between equity and debt. As long as the debt is serviced; the equity, represented by a Board of Directors, has complete control of the firm. When the firm fails to service its debt, control of the firm shifts to the creditors, represented by a Committee of Creditors (CoC), for resolving stress. The Code envisages the CoC to comprise financial creditors for the process to be speedy, effective, and efficient.
The Code assigns the role of a saviour to the CoC. It recognises a wider public interest in resolving corporate insolvencies [Kridhan Infrastructure Pvt. Ltd. v. Venkatesan Sankaranarayan & Ors., REED 2021 SC 03530]. It is a beneficial legislation which aims to put the firm back on its feet. It enables the revival and continuation of the firm by protecting it from its own management and from closure by liquidation. The first and foremost objective of the Code is the reorganisation and insolvency resolution of the firm [Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors., REED 2019 SC 01504]. The second order objective is maximising the value of assets of the firm and the third order objective is promoting entrepreneurship, availability of credit and balancing the interests of all stakeholders. This order of objectives is sacrosanct [Binani Industries Limited v. Bank of Baroda & Anr., REED 2018 NCLAT Del 11524]. If there is a resolution applicant who can continue to run the firm as a going concern, every effort must be made to try and see that this is made possible [Arcelor Mittal India Private Limited v. Satish Kumar Gupta and Ors., REED 2018 SC 10541].
The CoC has the responsibility to rescue viable firms and close unviable ones. Its commercial wisdom is supreme. An inappropriate decision which lets a viable firm close or an unviable firm survive is very costly for stakeholders and the economy. The CoC needs to rescue a viable firm through a resolution plan that (i) has been received from a credible and capable resolution applicant, (ii) complies with the applicable laws, (iii) is feasible and viable, (iv) has potential to address the stress, (v) has provision for effective implementation of the plan, and (vi) maximises the value of the assets of the firm, irrespective of realisation for creditors under the plan. This ensures sustained resolution.
The CoC has powers commensurate with its responsibilities. It can decide a haircut of any magnitude to any or all stakeholders required for rescuing the firm; and seek and choose the best resolution plan from the market, unlike other avenues that allow creditors to find a resolution only from existing promoters. The resolution plan can entail a change of management, technology, or product portfolio; acquisition or disposal of assets, businesses, or undertakings; restructuring of the organisation, business model, ownership, or balance sheet; strategy of turn-around, buy-out, merger, amalgamation, acquisition, or takeover; and so on, as may be necessary to resolve the stress of the firm. Its decisions must increase the value of the firm, which is valued at 100 at the commencement of the resolution process, to at least 101 the next year, 102 the year after, and so on. Such value maximisation with sustained resolution requires strategies much beyond the restructuring of liabilities. This requires tremendous commercial dexterity and acumen on the part of members of the CoC.
The responsibility comes with accountability. Since the decisions of the CoC impact the life of the firm and consequently its stakeholders, it needs to be fair and transparent in its decisions.
Download full details to join the Workshop
Comentarios