Defaulters may keep reins in IBC plot twist

Govt earlier tried the debtor-in-control model with small businesses

- Gireesh Chandra Prasad

The government will examine suggestions to let shareholders of large defaulters retain control of the businesses while exploring fresh investments and corporate restructuring with its lenders outside bankruptcy tribunals, in a major change to the Insolvency and Bankruptcy Code (IBC).

The ministry of corporate affairs' insolvency law committee, comprising officials and independent experts, will examine this proposal in detail, said a person familiar with discussions in the government.

If accepted, this will be a major shift from the current practice of shareholders of defaulting companies ceding management control to an administrator appointed by a committee of creditors. The proposal to let the existing management retain control contrasts the original IBC structure of creditors taking control after the admission of the bankruptcy petition. The fear of losing control of their companies has encouraged many defaulters to resolve their disputes with creditors and avoid insolvency proceedings. However, some experts contend that the tribunal-led process was not flexible enough for lenders and shareholders to effectively craft a rescue plan and save the company before its operations failed and regulatory permits were lost.