Centre to come up with creditor-led insolvency resolution framework: Report

New Delhi, May 9, 2023

The creditors and debtors will be allowed to reach an informal agreement to resolve the bankruptcy case and later approach the NCLT to admit cases

In a bid to ease the burden of the National Company Law Tribunal (NCLT) and fast-track settlement, the Centre is looking to consider a creditor-led insolvency resolution mechanism under the bankruptcy law, The Economic Times (ET) reported on Monday.

The creditors and debtors will be allowed to reach an informal agreement to resolve the bankruptcy case and later approach the NCLT to admit cases quickly, a person aware of the matter told ET. However, the finer details will be finalised after consultations with the stakeholders.

The resolution process for corporate insolvency has seen delays due to rising cases and a shortage of NCLT benches. Earlier, the Insolvency and Bankruptcy Board of India (IBBI) set up a panel under Sudhaker Shukla to firm up a "regulatory approach" to fast-track the resolution process, the report added.

Moreover, the board may also allow management of the firms under stress to continue until the resolution process is complete. Also, the creditor-led resolution approach would differ from the pre-packaged scheme, which also allows informal discussions between the lender and the defaulter. However, it is only allowed to micro, small, and medium enterprises (MSMEs).

Unlike the pre-packaged deal, the new deal would put 'reasonable restrictions' on the bidding of the assets of the defaulter.
The IBC has fixed a maximum of 270 days to resolve corporate bankruptcy. But according to data from IBBI, 611 cases resolved till December 2022 took on an average of 482 days to resolve.

"Such a framework will enable all stakeholders to understand each other's concerns with clarity and resolve the same through discussions," Yogendra Aldak, partner at Lakshmikumaran & Sridharan Attorneys, told ET.

[The Business Standard]