Cloud over Videocon resolution process points to larger weakness in IBC

Source: Indian Express

Syllabus: GS- 3 Industries and industrial policies

Synopsis: issues involved in Videocon resolution process

 Background

• Videocon was one of the first test cases to examine the prospects of insolvency jurisprudence in India and the first one, for group insolvency proceedings.
• On June 8, the NCLT approved a resolution plan submitted by Twinstar Technologies (a wholly-owned subsidiary of the Vedanta Group).
• Twinstar’s resolution plan provided for payment of Rs. 2,962 crore (a mere 4.15 percent of Videocon’s total admitted debt of Rs 64,838 crore).
• This had raised several concerns, such as
  • Confidentiality obligations of the resolution professional
  • The rights of dissenting creditors.
• Expectedly, the National Company Law Appellate Tribunal (NCLAT) stayed the approval granted by the Mumbai bench of the National Company Law Tribunal (NCLT).

What are the issues involved in the Videocon resolution process?

1. Principles of Fairness and equitability ignored

• Under the IBC (Section 30(2)(b)), the resolution plan must provide for payment of debts amongst creditors in a “fair and equitable” manner.
• In the plan submitted by Twinstar, unsecured assenting financial creditors and operational creditors are getting a paltry 0.62 percent and 0.72 percent of their admitted dues.
• This has raised concerns about whether such resolutions are in line with the public policy of the country.

2. Suspicion over the confidentiality of the resolution process.

• Twinstar’s bid of Rs 2,962 crore is close to the liquidation value of the Videocon Group, estimated at Rs 2,568 crore.
• This raises legitimate suspicion and concern over the confidentiality of the resolution process.
• Regulations 35(2) and 35(3) of the I&B (Insolvency Resolution of Corporate Persons) Regulations, 2016 have provisions related to the confidentiality of the resolution process.
• It states that the resolution professional must maintain the confidentiality of the fair market value and liquidation value of the corporate debtor and can only disclose the same to the CoC members after the resolutions plan has been submitted.
• Whilst the CoC members must, on receipt of the information, issue an undertaking of confidentiality, no such obligation falls on the resolution professional.
• Even under Section 25 of the code, titled “Duties of resolution professional”, the specific duty to maintain the confidentiality of sensitive information is conspicuously absent.
• Clearly, the confidentiality rules need to be revisited, especially the rules related to the resolution professional.

3. Delayed Resolution Process

• It has been more than three years since the Videocon group was admitted into insolvency proceedings. This is way beyond the statutory timeline of 330 days.

Conclusion

The two primary objectives of enacting the IBC were: The conclusion of the insolvency resolution process in a “time-bound manner”, and “maximization of value of assets” of the corporate debtor. The Videocon resolution plan fails both objectives.