The Government of India introduced the Insolvency and Bankruptcy Code, 2016 (IBC) to simplify and consolidate various existing laws relating to insolvency and bankruptcy and to provide for a single legal framework to deal with all instances of insolvency and bankruptcy in India.

The Indian Insolvency & Bankruptcy Code, 2016 (IBC) has seen several challenges in recent times. The Indian Government has been proactive in responding to these. In response to the recent set of challenges, the Government intends to implement another round of amendments to the IBC. The key takeaways from this proposed amendment are discussed below.

In a big move to strengthen norms for the Insolvency Resolution Professionals (IRP‘s), the governing body for the Insolvency Professionals, the ‘Insolvency and Bankruptcy Board of India (herein referred to as ‘the Board’) has notified amendments to the (i) the Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulations, 2016 and (ii) the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016.

The terms of the transaction documents for mergers and acquisitions are often dictated by the economics of investment and the bargaining position of the parties. The terms so contractually agreed upon must, however, always be within the operative legal framework. Liquidation Preference (“LP”) is a tool often used to embolden investors seeking security of their investment. LP is crucial, especially where the investors anticipate exit at a value lower than their initial investment.

The National Company Law Appellate Tribunal (“NCLAT”) vide its order dated 23.09.2019 passed in the matter ofVinayaka Exports and another Vs. M/s. Colorhome Developers Pvt. Ltd., overturned the decision of the National Company Law Tribunal, Chennai Bench (“NCLT”) dismissing an application filed by two financial creditors under Insolvency and Bankruptcy Code (“Code”) owing to the pendency of a civil suit and pre-existing dispute between the parties.

FACTS:

The enactment of the Insolvency and Bankruptcy Code, 2016 (IBC) has been often cited as one of the key economic reform of the present government . Undoubtedly the new enactment resulted in large corporate entities queuing up to acquire distressed companies and their assets, put on block following initiation of IBC proceedings, thereby infusing efficiencies in the economy due to likely revivals of such companies .

INTRODUCTION 

Background 

Commercial decisions are largely driven by incentive structures. Therefore, if legal policy favours a particular commercial outcome, the decision-making in that regard must be placed in the hands of entities most likely to be affected by such outcomes. This logic can also be applied to insolvency proceedings. The favoured policy outcome of the Indian insolvency law framework is the maximization of value of a corporate debtor. In the context of an insolvent company, the persons most likely to gain from such maximization of value are its creditors.

The Hon’ble National Company Law Appellate Tribunal (‘NCLAT’) in its order in Standard Chartered Bank v. Satish Kumar Gupta, R.P. of Essar Steel Limited & Ors. has dealt with various important legal issues in relation to the corporate insolvency resolution process (‘CIRP’). Some of the key aspects of this judgment have been summarised below:

1. Validity of Guarantee