Differential Treatment Among and Within Classes of Creditors Under the Insolvency and Bankruptcy Code, 2016: Issues and Suggestions

Abstract

C. Scott Pryor and Dr. Risham Garg, have undertaken a multi-pronged project to understand certain aspects of the implementation of India’s new Insolvency and Bankruptcy Code, 2016 (“IBC”). Their efforts have included a questionnaire emailed to a large number of Resolution and Insolvency Processionals as well as interviews of Resolution Professionals, Insolvency Professionals, attorneys, representatives of several of the Insolvency Professional Agencies, and officials of the Insolvency and Bankruptcy Board of India. Pryor and Garg have identified several problematic developments as a result of their research that in turn have led them to three preliminary conclusions: 1. Vesting near-plenary control of the Corporate Resolution Insolvency Process (CIRP) with a Committee of Creditors composed of only financial creditors leads to a perception of inequitable distributions between the class of financial creditors and the class of operational creditors. 2. The CIRP provisions of the IBC may be inconsistent with public policy because they have been construed to fail to protect vested charges that secured creditors may have against the property or assets of the corporate debtor. 3. The CIRP provisions and accompanying regulations fall short of the standards of procedural fairness. In addition to conducting additional empirical research to test their preliminary conclusions, Pryor and Garg suggest that the CIRP Regulations be revised to provide that: (i) the any resolution plan provide for the value of the secured claims of holders of registered charges in assets of the corporate debtor; (ii) any resolution plan disclose the bases for the allocation of value within the class of financial creditors and between the classes of financial and operational creditors; and (iii) the Committee of Creditors provide reasons for any deviation from the norm of equitable distribution of any residual enterprise value among financial and operational creditors.