[The following update has been brought to you by Saumya Raizada, who is an Editor at IRCCL.]
The necessity of bringing together a single framework for group or interlinked companies undergoing insolvency has been recognized by the UK Sinha-led Panel (Panel). Multiple applications by group companies undergoing insolvency may lead to a loss of time and value of the stakeholders involved. To overcome such situations, the recommendation of a more structured framework for group companies undergoing an insolvency procedure has been made. The Panel’s suggestion for implementation of the framework is to roll it out in a phased manner. The recommendations seem to have been made to promote information symmetry, save time of the parties involved, reduce litigation and increase certainty for the stakeholders involved in such proceedings.
The recommendations of the Panel are set out below:
Capacity building: As per the Panel, the manpower required for the smooth facilitation of the group insolvency process should be trained beforehand so as to handle such applications. The Panel also proposed that the first phase of the framework may cover only domestic companies. This framework may be extended to cross-border groups, if such a need is felt at a later stage.
Definition of a ‘group’: The Panel recommended that the definition of ‘corporate group’ should include holding, subsidiary, and associate companies.
Cooperation, communication and information sharing between insolvency professionals, creditors and adjudicating authorities: At times, duplication of efforts in terms of fact collation and assessment may take place in case of multiple applications by group companies. A coordination of efforts and information sharing is envisioned so as to save time, maximize efforts of the professionals involved in the insolvency. The Panel also mentioned that groups are sometimes entangled to the extent that a disentanglement may further create issues and so a group insolvency application may be the best way to handle such cases.
Procedural coordination mechanisms: In order to facilitate joint applications on the part of a resolution applicant, a group Committee of Creditors (CoC) may be formed, and it is opined that the appointment of a single insolvency resolution professional may further smoothen the process. The Panel has also identified some stages at which such procedural coordination mechanisms may be made applicable, such as:
a) Public announcement;
b) Constitution of the CoC;
c) Meetings of the CoC;
d) Moratorium;
e) Invitation of resolution plans;
f) Sale of assets in liquidation, and
g) Reporting in liquidation.
Extension in time-frame for the completion of group insolvency proceedings: The Panel has recommended the time-frame of proceedings to be extended by a period of 90 days upon an application to the Adjudicating Authority, such that the overall time period does not exceed a total of 420 days.
Exceptions to the framework: The Panel has identified a few incidents of exceptions to the framework such as: (i) conflict of interest, (ii) lack of sufficient resources and (iii) an adverse effect to the stakeholders due to a group insolvency application.