Centre weighs allowing group insolvencies

The idea was mooted by the Centre earlier to stake-holders. Other business chambers have also supported the move as they feel there would be quicker resolution to insolvency problems.

Published: 13th June 2019 10:27 AM  |   Last Updated: 13th June 2019 10:27 AM   |  A+A-

Union Defence Minister Nirmala Sitharaman

Minister of Finance and Corporate Affairs Nirmala Sitharaman (File Photo | PTI)

Express News Service

NEW DELHI: The government is considering allowing group insolvencies, a concept where instead of lenders taking each subsidiary separately for bankruptcy, the entire group would be taken for insolvency resolution.

“We have been mulling this for some time and in the final draft we are likely to incorporate this as both lenders and many industry bodies are in agreement that this will be the best solution,” said senior officials in the Ministry of Corporate Affairs.

The idea was mooted by the Centre earlier to stake-holders. Other business chambers have also supported the move as they feel there would be quicker resolution to insolvency problems.Said former SBI Managing Director Sanjay Bhattacharyya, “The thinking is based on the principle that a group has to answer for the bankruptcy of a subsidiary. Some parts of an Octopus cannot be healthy and others sick. However, we have to also understand that each company is a separate entity and often a subsidiary’s troubles do not reflect on the whole group.”

The recent crisis in  IL&FS. where now it has been discovered that all its subsidiaries were in trouble despite the high credit rating that the group as a whole and subsidiaries individually enjoyed. seems to have provoked the government to consider bringing in this provision.

Officials said that they hoped to create a framework through amendments to the IBC Act which will let multiple entities of a group facing near bankruptcy issues to be clubbed together before a single tribunal for a quicker resolution.

“Read together with another formulation which we have suggested – of pre-packaged insolvency this could really speed up things,” they said.  

A pre-packaged insolvency is a procedure where a bankruptcy restructuring is agreed in advance of accompany being declared insolvent by the lenders and the company in question.The package is then brought before the Insolvency board and as it has already been agreed to is passed quickly. Both the United States and United Kingdom have provisions for ‘pre-pack’.

Stay up to date on all the latest Business news with The New Indian Express App. Download now
(Get the news that matters from New Indian Express on WhatsApp. Click this link and hit 'Click to Subscribe'. Follow the instructions after that.)


Disclaimer : We respect your thoughts and views! But we need to be judicious while moderating your comments. All the comments will be moderated by the newindianexpress.com editorial. Abstain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks. Try to avoid outside hyperlinks inside the comment. Help us delete comments that do not follow these guidelines.

The views expressed in comments published on newindianexpress.com are those of the comment writers alone. They do not represent the views or opinions of newindianexpress.com or its staff, nor do they represent the views or opinions of The New Indian Express Group, or any entity of, or affiliated with, The New Indian Express Group. newindianexpress.com reserves the right to take any or all comments down at any time.

flipboard facebook twitter whatsapp