Mint Explainer: How can voluntary group insolvency smoothen IBC proceedings?

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Subscribe to enjoy similar stories. MUMBAI : The Centre's proposal to introduce “voluntary" group insolvency aims at maximizing the larger group companies' asset value and keeping the overall corporate insolvency resolution costs low. The proposal is expected to be taken up in the winter session of Parliament in December.

Voluntary group insolvency refers to a process where a group of related companies, often within the same corporate structure, voluntarily enters insolvency proceedings. This can occur when the group as a whole is unable to meet its financial obligations. It also provides a framework for the financial creditors across multiple group entities to work together on the resolution of the entire group.

Mint takes a look at old group insolvency cases under the Insolvency and Bankruptcy Code (IBC) to examine what it could mean for Indian companies. The aim is to restructure or wind up a group’s affairs in a way that maximizes returns for creditors. Group-structured business are interrelated and rely on one another structurally, financially, and operationally.

This calls for an integrated approach during the restructuring or liquidation process, with the goal of maximizing value. According to insolvency lawyers, the implementation of the group insolvency option will enable the bankruptcy courts to pierce the corporate veil and hold group companies accountable as a single economic unit. In addition, it will also make the resolution process quicker and less expensive for group companies.