The Insolvency and Bankruptcy Code (Amendment) Act, 2019, seeks to reduce delays in the resolution process because there has been extensive litigation on various aspects of the IBC. A resolution plan can provide for comprehensive corporate restructuring schemes such as mergers, demergers and amalgamations under section 5(26).
The inclusion of mergers, amalgamations and arrangements as part of resolution plans follows a landmark NCLT judgment in the case of Edelweiss Asset Reconstruction Company (2019), in which the resolution plan was approved with a proposal for amalgamation of related parties that followed the timeframes prescribed under the code.
Merger, demerger, restructuring and amalgamation could give a significant advantage to both stressed business entities as parties to a resolution process owing to the characteristics of a transfer of assets and liabilities by operation of law pursuant to an order under the IBC. This would provide greater security to acquirers both as to the quality of assets as well as limitations on liabilities. The 2019 Amendments will also increase the number of M&A transactions considering that mergers and amalgamations are market driven and hence are impacted by economic drivers and market sentiment as well as by regulatory regimes. The 2019 amendment will lead to easier M&A transactions because of the predictability of (i) outcome on quality of assets, (ii) limitation of liabilities and (iii) timeframe.
The deadline for completion of the corporate insolvency resolution process (CIRP) is 330 days, including litigation and other judicial processes. The use of inclusive language regarding timeframes for the completion of CIRP within 330 days makes the milestone mandatory, notwithstanding any outstanding litigation and judicial processes. These have been causing delays resulting in all milestones under the code being missed.
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Shweta Bharti is a senior partner and Katyani Mahendru is an associate at Hammurabi & Solomon.
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