The finance minister has announced the suspension of fresh insolvency proceedings for
The finance minister has announced the suspension of fresh insolvency proceedings for up to one year. During this period, the Insolvency and Bankruptcy Code, 2016 (IBC) will not be available for debt resolution and distressed companies and their creditors may turn to ‘schemes’ under the Companies Act, 2013.
The Companies Act provides the framework for schemes of ‘compromise or arrangement’ between ‘a company and its creditors or any class of them’ or ‘a company and its members or any class of them’. These provisions are used extensively in mergers, demergers, and amalgamations; their use for debt restructuring has not been as common. This is even though Section 230 expressly provides for a ‘scheme of corporate debt restructuring’; that is, ‘a scheme that seeks to restructure or vary the debt obligations of a company towards its creditors’.
Despite its disuse, the scheme process under the Companies Act is a viable alternative to the IBC. first, it is a collective process. A scheme that is…