Can Multiple Companies Be Jointly Resolved Under IBC?

The Insolvency and Bankruptcy Code (IBC) primarily focuses on resolving insolvency for individual companies. However, in certain situations, multiple companies within the same group or with interlinked debts can undergo a joint resolution process. This typically occurs when the companies are closely related in terms of their corporate structure, operations, or have common creditors, and resolving them together can maximize the value for creditors and improve the chances of successful resolution.

Joint Resolution Process for Multiple Companies under IBC:

Conditions for Joint Resolution:

Under the IBC, there is no explicit provision allowing for the direct joint resolution of multiple companies. However, in practice, group companies or companies with common creditors can be resolved together if certain conditions are met:

• Interlinked Financials: The companies must be financially interlinked or have significant overlap in their creditor base. This means that the creditors of multiple companies should be the same or significantly overlapping.
• Common Management or Ownership: Joint resolution is more likely if the companies belong to the same corporate group or are controlled by the same management, leading to a common strategy for the resolution of their financial distress.
• Approval by Committee of Creditors (CoC): For a joint resolution to be considered, the Committee of Creditors (CoC) for each company involved must approve it. The CoC plays a critical role in deciding whether to proceed with a consolidated resolution plan.

Process for Joint Resolution:

While the IBC does not formally provide for joint resolution, a consolidated resolution plan can be submitted for multiple companies. The process generally involves:

• Filing separate insolvency applications for each company: Each company must go through the Corporate Insolvency Resolution Process (CIRP) individually before a joint resolution can be considered.
• Committee of Creditors’ Approval: The CoC for each company must agree to a common resolution plan. This is especially complex when creditors of different companies have conflicting interests, as the resolution plan must balance their rights and provide an equitable solution.
• Single Resolution Plan: A single resolution plan can be submitted to resolve the financial stress of the group of companies. The Insolvency Professional (IP) must ensure that the plan is feasible and in line with the principles of the IBC, ensuring that the creditors' rights are protected.

Advantages of Joint Resolution:

• Maximizing Value for Creditors: A joint resolution of group companies can lead to a better recovery for creditors than resolving each company individually. By addressing their shared debt and common assets, creditors may see higher returns.
• Operational Synergies: If the companies are operationally interlinked, resolving them together can help achieve synergies that would not be possible with separate resolutions, such as shared resources, assets, or business operations.
• Efficient Resource Allocation: A joint resolution can help avoid inefficiencies or duplication of efforts when the companies share resources or have complementary business operations. It can also streamline the Committee of Creditors process.
• Faster Resolution: Joint resolution may speed up the resolution process by focusing on one resolution plan for multiple companies, reducing the time required for individual proceedings.

Challenges in Joint Resolution:

• Conflicting Interests of Creditors: In a group of companies, each company’s creditors may have different priorities and concerns. For example, secured creditors of one company may have different interests from unsecured creditors of another company. Balancing these interests in a single resolution plan can be difficult.
• Complexity of Corporate Structure: Companies with different corporate structures or business models might face challenges in aligning their financial goals and resolution strategies. This could lead to disagreements on how assets are allocated or how debts are restructured.
• Diverse Jurisdictional Issues: If the companies are spread across multiple regions or jurisdictions, the legal and regulatory frameworks may differ, complicating the joint resolution process.
• Approval Delays: The resolution plan must be approved by the CoC of each company involved. If any member of the CoC disagrees with the proposal, it may lead to delays or rejection of the joint resolution.

Legal Framework for Group Insolvency (Proposed Changes):

While the IBC does not yet have a formal group insolvency framework, the Government of India has been considering reforms to provide a clearer framework for group companies or joint resolution. In 2021, the Insolvency Law Committee released a report suggesting the introduction of a Group Insolvency Regime that would allow multiple companies in a group to undergo a common resolution process under the IBC.

This would include measures to address issues such as cross-company debt, shared assets, and intercompany loans, making it easier to resolve insolvency cases where companies are interlinked.

Example of Joint Resolution in Practice:

A well-known example of group company insolvency under the IBC is the case of Jaypee Infratech Ltd. The company, along with its subsidiaries and affiliates, faced significant financial distress and sought resolution under the IBC. While each company was individually subject to the CIRP, the CoC took a unified approach to resolve the group’s financial issues, resulting in cross-border negotiations and a consolidated resolution plan for the entire group.

Example Scenarios:

Scenario 1: Joint Resolution in a Corporate Group

A corporate group has three interlinked companies with overlapping creditors. Each company files for insolvency under IBC, but the creditors agree to a joint resolution plan to address the common debt. The Insolvency Professional (IP) develops a unified resolution plan that maximizes asset utilization and ensures fair treatment of all creditors across the group.

Scenario 2: Cross-Border Joint Resolution

A multinational corporation with subsidiaries in India, the UK, and the US faces insolvency. Due to the cross-border nature of the business, a joint resolution plan is prepared by the respective insolvency professionals across jurisdictions. The Indian, UK, and US regulators cooperate to ensure a seamless process that resolves the interlinked debts and enables the recovery of value for creditors.

Conclusion:

While IBC does not provide an explicit framework for joint resolution, it is possible for multiple companies within the same group or with shared debts to undergo a consolidated resolution process. Such an approach can offer significant benefits, including maximizing value for creditors, increasing operational synergies, and streamlining the resolution process. However, the complexity of managing differing creditor interests and corporate structures presents challenges that must be carefully managed. Ongoing discussions regarding group insolvency frameworks may pave the way for clearer guidelines and more efficient joint resolution processes under the IBC in the future.