Insolvency and Bankruptcy Code: IBBI moves to tweak Bankruptcy Code for speedier resolutions

Citing cases like Videocon and SREI, the regulator is looking to introduce “coordinated resolution for interconnected entities” to reduce costs and quicken the process. In a discussion paper ‘Streamlining Processes under the Code: Reforms for Enhanced Efficiency and Outcomes” floated on Tuesday, for the group insolvency process, IBBI has proposed changes including joint hearings, a common resolution professional, and coordinated timelines for companies under common ownership.

This would benefit creditors in long-running cases like KSK Mahanadi, under CIRP since October 2019. IBBI has asked stakeholders to submit comments on these proposals by February 25.

“The rise of complex corporate structures with intertwined operations and finances in sectors such as real estate and power generation demands a more nuanced insolvency resolution approach,” IBBI said. Currently, each entity is treated as a standalone unit, ignoring interdependencies that could enhance value. This siloed approach weakens outcomes and creates inefficiencies, escalating costs and conflicts, especially when multiple related firms undergo CIRP simultaneously. Recent cases including Videocon and SREI, have seen the need for a group insolvency framework.

Also, IBBI has proposed to eliminate the sequential bidding process, which delays asset sales by requiring resolution professionals to first seek bids for the entire company before inviting offers for individual assets. The regulator said that this approach extends CIRP timelines and erodes the value of viable business segments. It is particularly problematic in complex businesses where different segments attract specialized investors.

To address this, IBBI has proposed allowing concurrent bidding for the corporate debtor and its assets, reducing delays, and preserving value. IBBI said that resolution professionals, with CoC approval, should be able to invite resolution plans simultaneously for both the entire company and specific assets.Following concerns on value erosion during the period between submission of resolution plan and final approval by NCLT, IBBI has proposed a 2-stage approval process, which will allow early clearance of financial bids and implementation frameworks while deferring inter-creditor and distribution disputes for later adjudication.IBBI has proposed stricter disclosure norms for avoidance transactions in insolvency cases, mandating regular updates to information memorandum and ensuring transparency for creditors and bidders.

In what would facilitate interim finance to beleaguered companies, IBBI has proposed allowing interim finance providers to attend CoC meetings as observers, improving transparency and reducing investment risks while maintaining CoC’s decision-making autonomy.