In the previous article we had discussed about the legal framework of tackling the group insolvency. You may gain insight via Click Here.
In this article our point of discussion would be the recommendation of the working committee in context to tackling the group insolvency.
On this note the recommendation laid down by the working group are as follows:
Applicability of procedural coordination mechanisms: It is noted by the working group that international practice suggests that procedural coordination mechanisms includes:
- Cooperation, communication and information sharing,
- Group coordination for the preparation of a common expression of interests, resolution plan,
- A joint application process,
- The designation of single adjudicating authority, the appointment of single insolvency professional, and formation of a group creditor committee.
It is noted by the working group that procedural coordination mechanisms are aimed at facilitating procedural synchronization between different insolvency proceedings, to lower costs of insolvency proceedings and maximize the value of assets of group companies by enabling a synchronized resolution of companies.
For all types of group companies each mechanism may not be suitable. Just for instance where group companies have few inter linkages, opening group coordination proceedings may not result in de-duplication of work , or identification of value maximizing inter- linkages. Moreover procedural coordination mechanisms may come with costs of their own, which may become unduly high in such case. Most stake holders consulted by the working group were of the view that most procedural coordination mechanisms may come with costs of their own, which may become unduly high in such cases. Most of the stakeholders who were consulted by the working group were of the view that most procedural coordination mechanisms may be enabled by law but should not be applicable in those cases where the costs of procedural coordination mechanisms are unduly burdensome. However in some cases stakeholders were of the view that procedural coordination can be mandated by law.
The Procedural coordination could only be beneficial for the creditors of two or more group entities when it generates a greater value than those cases where the insolvency proceedings of such entities are completed independently by increasing recoveries or lowering costs. Thus mandating procedural coordination in all cases is unlikely to lower costs of insolvency proceedings or maximum value. Thus working group recommended that procedural coordination mechanisms ( other than cooperation, coordination and information sharing ) should in principle be enabled by law, however flexibility should be granted to not opt for or apply these mechanisms in those cases where they don’t help maximize value of assets or lower costs of proceedings.
The Working group further recommended that insolvency professionals, CoCs and Adjudicating Authorities should be mandated to cooperate, communicate and share information with each other.
Therefore, on analyzing the international practices and consultations with stakeholders , the Working Group is of the opinion that procedural coordination mechanisms promotes efficiency and reduce costs, and are largely facilitative in nature .
To conclude, the working group has recommended that following procedural coordination mechanisms should be provided for in the manner discussed below:
- Joint application process be allowed for the insolvency resolution of multiple insolvent companies in a group: The Working Group has recommended that a single application to commence the CIRP for multiple group companies that have commited a default (“Joint Application”) can be made by financial creditors , operational creditors or the group companies themselves. And by doing this there will be reduction in the costs of making multiple applications and promote coordination of insolvency proceedings of different companies in a group , through the establishment of a single commencement date and may include a proposal for the appointment of a single insolvency professional. To ensure that framework for group insolvency is not invoked without adequate justification, all the companies listed in the joint application for the initiation of insolvency of the companies should have committed default as required under section 7, 9 and 10, as the case may be. Such a joint application process should be in addition to mechanism to initiate the CIRP process against each group company separately.
When the adjudicating authority accepts the application to commence the insolvency resolution process for multiple companies, then that adjudication authority can order that a single public announcement should be made for all companies.
- All insolvency proceedings should be administered by a single Adjudicating Authority: A single Adjudicating Authority to administer all insolvency proceedings of companies in a corporate group will reduce judicial effort in piecing together the same information, thereby turning down the time and costs of insolvency resolution proceedings and reduce the procedural gaps between proceedings of multiple group companies. Then the Working Group has recommended that a single Adjudicating Authority should administer insolvency proceedings of companies in a group. The working group was suggested by the some stakeholders that the single adjudicating authority should be the adjudicating authority which has jurisdiction over the areas in which the corporate groups centre of main interest lies. In the opinion of the of the working group providing an objective trigger based on the place where an application is first admitted is likely to lower the litigation costs save judicial resources and reduce the time taken for admission of proceedings.
Hope that this article was informative in providing an insight about the recommendations as laid down by the working group.
Stay connected with MUDS for more updates.