Hello! Welcome back to our updates on Indian insolvency and restructuring laws.

IBBI regulations will now permit a corporate debtor’s asset that is “not readily realisable” to be transferred to a third party in consultation with stakeholders. Creditors can also transfer debt due to them to a third party.

India’s securities regulator has said that when a company that has undergone insolvency resolution is re-listed, it should have at least 5% public shareholding at the time of re-listing, achieve 10% in a year, and 25% in 3 years.

A pre-packaged insolvency is an agreement between secured creditors and investors in lieu of public bidding. The IBBI’s proposal to allow companies to withdraw from the process of voluntary liquidation makes the case for a pre-packaged insolvency resolution, an editorial has argued. A whole-time member of the IBBI has said that India may settle for a pre-packaged insolvency regime which is NCLT-facilitated and not entirely outside of the courts’ purview.

Our managing partner Abhishek Nath Tripathi and partner Mani Gupta contributed the India chapter to Global Restructuring Review’s Asia-Pacific Restructuring Review 2021. The India chapter is available here. The entire publication is available here.

From the Docket

In Kaledonia Jute and Fibres v. Axis Nirman and Industries, a 3-judge bench of the Supreme Court held that the liquidator (in winding-up proceedings) is representative of a body of creditors. The Court also held that the entire body of creditors of a company is a party to winding-up proceedings and hence, a creditor is entitled to seek the transfer of a pending winding up petition under the fifth proviso to Section 434(1)(c) of the Companies Act, 2013. In such a case, the stage of the winding up proceedings as per the Companies (Transfer of Pending Proceedings) Rules, 2016 would not have any application.

The High Court of Delhi, in Venus Recruiters v. Union, held that avoidance applications relating to preferential transactions filed under Section 43 of the IBC do not survive beyond the conclusion of the corporate insolvency resolution process resulting in a resolution plan. The High Court also clarified that this position would not be applicable if the corporate debtor is ordered to be liquidated under the Code.

In SBI v. Athena Energy Ventures, the NCLAT held that two applications can simultaneously be filed and maintained against a corporate debtor and its corporate guarantor on the same debt and default. It relied on the amended sub-section (2) of Section 60 of the Code and Section 60(3). The tribunal further held that under a contract of guarantee, it is only when the creditor receives the amount that the question of no more due or adjustment would arise and similarly it would be a matter of adjustment when the creditor receives debt due from the borrower/guarantor in the respective CIRP that the same be adjusted in the other CIRP. The appellate authority distinguished its own judgment in Vishnu Agarwal v. Piramal Enterprises Limited, 2019 SCC OnLine NCLAT 81.

The NCLAT rejected challenges to an approved resolution plan filed by some promoter group entities and dissenting financial creditors in Facor Alloys. The appellate authority held that firstly, the shares of a subsidiary of a corporate debtor constitute the assets of the corporate debtor and hence, the resolution applicant is entitled to exercise control over the same. In this way, if control of a subsidiary passes to a successful resolution applicant, the NCLAT held that there can be no objection to the resolution plan. Secondly, the plan which provided for liquidation value and zero-coupon unlisted NCDs to be issued to dissenting creditors did not provide differential treatment of creditors of the same class and hence, was not in violation of the provisions of the IBC.

Thank you for reading! We will be back in your inbox in 2021. Wishing you all the very best of the festive season!

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