Group Insolvency: The Future Of Resolving Complex Insolvencies In India

Considering the issue around CIRP for group companies such as value deterioration in the assets of the group companies and lack of bidders in the market for individual group company, the time seems right to further strengthen the Code by adding a chapter on Group Insolvency

The Insolvency and Bankruptcy Code, 2016 (“Code”), is often viewed as a platform that has successfully (as many would say), consolidated the insolvency resolution regime in India, which was earlier compartmentalized in different enactments, making insolvency resolution complex and often conflicting.

Consequent to the enactment of the Code, the Indian economic and judicial system has faced dynamic and institutional changes which have augured well for the stakeholders involved. Time is ripe for the system to explore other facets of the insolvency regime which include group insolvency, which is the defining theme of this article.

Group insolvency (“Group Insolvency”) primarily means consolidation of the corporate insolvency resolution process (“CIRP”) of different companies of the same group in such a manner so as to have a common CIRP for the entire group. It primarily aims at keeping the group of companies together in order to either restructure the group as a whole or to utilize or liquidate the group’s asset value in the best interest of all parties involved. In the absence of Group Insolvency regime, companies of the same group undergo separate insolvency process which means that assets/investments of only one company will be available to the bidder during the CIRP, leading to asset liability mismatch and resultantly an unsatisfactory bid for the lenders. Further, since there are common sets of lenders for the group companies, it more often than not leads to overlapping of debt facilities and double counting in calculation of outstanding and voting percentages in an insolvency scenario.