Feature Article
New Indian Law on Corporate Liquidations- Highlights for International Creditors
By: Maneesha Dhir, Founder and Managing Partner, Dhir & Dhir Associates (India network) & Pooja Sinha, Lawyer, Howse Williams Bowers (Singapore network)1
Introduction
The previous law governing corporate liquidations in India (apart from certain provisions relating to corporate winding-ups under the existing Indian company law) has been replaced in its entirety by the provisions of the new Insolvency and Bankruptcy Code, 2016 (which became law on May 28, 2016 and is being declared effective in phases) (the "Code") and the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (which were notified and declared effective on December 15, 2016) (the “Liquidation Regulations” and collectively with the Code the "Regulations"). The Regulations are part of a suite of new laws on debt restructurings, insolvencies, and liquidations (both corporate and personal) introduced by the current Indian government in 2016 to help improve the ease of doing business in India.2
Overview
In general, the provisions of the Regulations are very creditor-friendly and aimed at creating an eco-system for liquidations driven by insolvency professionals. They seek to balance the commercial and legal aspects of liquidations by giving liquidators more powers and, correspondingly, subjecting them to more accountability. They have clearly been customized to help address the issues that have made Indian corporate debt restructurings and liquidations inefficient and ineffective for creditors in the past - namely, the delays that typically plague any regulatory/court process in India and the ability of corporate debtors and their founders to leverage various loopholes to the detriment of creditors and in particular, international creditors.
The Regulations are very progressive in that, in certain respects, they do not seem to be based on any one international precedent. This does, however, mean that it will take a while for a clear body of precedent to develop and, until such time, there is likely to be considerable uncertainty as to how the provisions of the Regulations will apply to specific fact situations that may arise. The overarching intention of the Regulations is clear- to give creditors greater control of the liquidation proceedings in contrast to the previous ‘debtor in possession’ regime.
continued on next page _________________________________________________________________________________________________________________________________
1With special thanks to Aruni Weerasekera, Senior Director, Alvarez & Marsal (Hong Kong network) for her input.
2For information on the impact of the Code on corporate debt restructurings, see India’s New Insolvency and Bankruptcy Code and Corporate Debt Restructurings- Highlights for International Creditors, available here.
Maneesha Dhir
Pooja Sinha