INTRODUCTION:
In a decision arising out of Tribune’s 2008 bankruptcy, the United States Court of Appeals for the Third Circuit recently issued a decision affirming confirmation of the media conglomerate’s chapter 11 plan over objections raised by senior noteholders who contended that the plan violated their rights under the Bankruptcy Code by not according them the full benefit of their prepetition subordination agreements with other creditors.
Background
With more than three lakh confirmed cases and 14 thousand deaths across 190 countries, the Coronavirus disease (COVID-19) pandemic has caused (and continues to cause) unprecedented disruptions in the global political, social and economic environment. India has not remained untouched from this. With almost 500 confirmed cases and the country in lock-down mode to prevent further outbreak, social and economic activities have come to a grinding halt.
The World Health Organisation (WHO) declared COVID-19 as a “pandemic” on March 11, 2020.
As the coronavirus (COVID-19) pandemic continues to shake global markets, it is likely that more companies will need to restructure to address liquidity constraints, to right-size their balance sheets, or to implement operational restructurings. In addition to a potential surge in restructurings, the spread of COVID-19 is already having pronounced impacts on companies planning or pursuing restructurings, and further market turmoil may cause even broader changes to the restructuring marketplace.
Potential Increase in Restructuring Activity
The Supreme Court in Pioneer Urban Land and Infrastructure Limited vs. Union of India (Pioneer Judgment)[1], has upheld the constitutionality of the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (Amendment Act)[2].
The Insolvency and Bankruptcy Code, 2016 (IBC) has been widely considered a landmark legislation that has brought about a paradigm shift in the recovery and resolution process.
However, during the implementation of the IBC over the past two years and eight months, several challenges have emerged, including:
The 2005 Report of the Expert Committee on Company Law (JJ Irani Committee Report) had noted that an effective insolvency law:
“should strike a balance between rehabilitation and liquidation. It should provide an opportunity for genuine effort to explore restructuring/ rehabilitation of potentially viable businesses with consensus of stakeholders reasonably arrived at. Where revival / rehabilitation is demonstrated as not being feasible, winding up should be resorted to.
The Reserve Bank of India (“RBI”) has issued the Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 (“New Framework”) on June 07, 2019[1] in which the RBI has continued the core principles of its circular dated February 12, 2018 (“February 12 Circular”) and has added provisions encouraging both informal and formal restructuring in India.