Insolvency's Group Tangle

The Insolvency and Bankruptcy Code (IBC) has been around for nearly seven years, and in these seven years, it has been amended six times. However, it is yet to address a significant concern: group insolvencies.

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While the IBC lags in accommodating the consolidation of resolution processes for group companies, courts have frequently intervened to take up group insolvency matters.

The absence of a dedicated provision for group insolvency within the IBC has led to notable cases of judicial consolidation. Among these are the consolidation of 13 Videocon group companies, Lavasa corporation and its subsidiaries, and the procedural consolidation of Srei Equipment Finance and Srei Infra Finance Ltd.

There was also the case where, to benefit homebuyers, the National Company Law Appellate Tribunal merged the insolvencies of five Edelweiss Asset Reconstruction Company Ltd entities developing a common township.

"In commercial matters, the law serves as a roadmap for transactions," says MS Sahoo, distinguished professor at the National Law University Delhi.

"The corporate insolvency resolution process, initially outlined by the IBC, is one such route." Another avenue, prepackaged insolvency resolution, was introduced through an amendment to the IBC, he explains. "Group insolvency resolution," Sahoo adds, "represents yet another guided pathway that requires legal provision. Courts, however, lack the capacity to lay such a path."

Anoop Rawat, partner at the law firm Shardul Amarchand Mangaldas & Co, adds that consolidation has so far arisen through judicial orders, without explicit provisions within the Code. "While group insolvency is a critical requirement in many cases, mandating substantive consolidation under the Code might not be prudent due to varying ownership structures and financing across each company within a group," he explains.

Interlinked, interdependent