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Informist, Monday, Nov. 11, 2024

 

NEW DELHI – Insolvency and Bankruptcy Board of India Chairperson Ravi Mittal said Monday it is necessary to take avoidance transactions in the Insolvency and Bankruptcy Code 2016 "seriously". In the quarterly report released by the board, Mittal said that as of the end of September, 1,326 avoidance transaction applications involving a total amount of INR 3.76 trillion had been filed with the various benches of the National Company Law Tribunal and 338 had been settled, involving a total amount of INR 75.16 billion.

 

"Avoidance transactions carried out by erstwhile promoters and directors are one of the primary causes leading to financial distress and sickness of CD (corporate debtors), and eventually entering the IBC (Insolvency and Bankruptcy Code)," Mittal said. "It is necessary to take these transactions seriously."

 

The chairperson said the committee of creditors should review the progress of these avoidance proceedings every month and, if required, create a mechanism to pursue these transactions before the tribunals. "Recovery from avoidance transactions would play a vital role in reducing haircuts to creditors," he said.

 

Mittal said that on a "conservative scale", decisions on avoidance transactions would add at least 10% to the recovery for creditors. "In cases where avoidance transactions are approved by the AA (adjudicating authority) for prosecution, creditors should approach the Ministry of Corporate Affairs or the Insolvency and Bankruptcy Board of India and file a criminal complaint under section 236 of the IBC before the special court established under Chapter XXVIII of the Companies Act, 2013," said Mittal.

 

Under the Insolvency and Bankruptcy Code, avoidance transactions are transactions that a corporate debtor takes before commencement of the insolvency resolution process to benefit related parties or their own management, defraud creditors, and harm the interests of other creditors. The resolution professional or liquidator of a corporate debtor can file an application with the tribunal to reverse an avoidance transaction.

 

Mittal said the provisions for avoidance transactions aid in maximising the value of the corporate debtor both "ex-post" and "ex-ante". These provisions foster good corporate governance and deter solvent entities and market participants from engaging in activities involving diversion of funds from the corporate debtor, he said. By annulling such transactions, the Code aims to prevent the depletion of the debtor's assets and protect the interest of creditors and other stakeholders. These funds would act as an additional source of recovery for the creditors, he added.

 

Further, the quarterly report said the Code had led to a direct recovery of about INR 3.55 trillion due to insolvency resolution and INR 104.46 billion due to liquidation till September end. Of the 1,068 corporate debtors rescued under the Code as of Sept. 30, 164 had admitted claims of more than INR 10 billion, according to the report.  End

 

Reported by Surya Tripathi

Edited by Rajeev Pai

 

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