Insolvency experts feel the ministry of corporate affairs has developed cold feet on a plan to introduce creditor-led resolution process (CLRP). They are worried that any delay in putting in place the proposed out-of-court settlement mechanism could thwart the government’s stated objective of speeding up the resolution of cases and reducing the involvement of tribunals in the insolvency process.
“This regulation is in the works for more than 18 months but is yet to be finalised by the ministry. The delay is hitting the valuation of companies where the creditors are ready for out-of-court settlements,” said a source.
Siddharth Srivastava, partner, Khaitan & Co, said, “There has been no action on CLRP since the past one year. We are waiting for the regulations to come out because resolution professionals are not always efficient in managing the operations of companies.”
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In January 2023, the ministry of corporate affairs (MCA) first introduced the concept of creditor-led “out-of-court settlement” through a discussion paper. Later, a framework report on CLRP by an expert committee was introduced that also studied alternative bankruptcy procedures in various jurisdictions such as the US, the UK, Australia, Germany and Singapore. The expert committee noted that CLRP will offer greater flexibility to the financial creditors to conduct the informal process – with the cooperation of the corporate debtors – rather than directly looking at market process for a resolution plan or by negotiating a plan with the management.
Asset-wise CIRP (corporate insolvency resolution process) is another critical issue that require attention from the ministry. Sources said that despite amendments being made in CIRP Regulations in 2022 that allow for asset-wise resolution, the details on how such resolution process will be carried out is still sketchy.
“The amendments have given just enabling provision. The detailing part comes under the court and the relevant authorities. There are a lot of areas the clarity is required,” a corporate lawyer said.
“The specifics are still missing. It’s not clear how the contours of such resolution will be decided. How to calculate the liquidation value? What will happen to the remaining assets? The current regulations don’t provide for it. It’s a complicated matter right now,” said another corporate lawyer, on condition of anonymity.
Early this year, the Insolvency and Bankruptcy Board of India gave a boost to the realty sector by introducing project-specific resolutions in insolvency cases.
From: financialexpress
Financial News
