Harmonising Alternate Restructuring Mechanisms within India's Insolvency Code: Utility and Need for Schemes of Arrangement

Originally Posted on ChaseCambria

Synopsis

Corporate restructuring and turnaround does not come with a one-size-fits-all template. While restructuring mechanisms inherent to a country's bankruptcy legal framework are preferred, India's intrinsically complex business environment calls for a trial-and-error approach. A focus on 'Schemes of Arrangement' ('Schemes') as a restructuring tool is much needed, as these have long been obliterated from the debtor and creditor side of the spectrum. A Scheme traces its origin from the English 1862 Companies Act and from thereon was readily adopted in common law jurisdictions.

In India, Schemes find their place in Section 230 of the 2013 Companies Act (the 'Companies Act'). Recently, there has been a renewed interest within the industry on the scope of Schemes under the aforesaid Section for restructuring the outstanding debt of a company. This renewed interest is a result of the COVID-19 induced pandemic and the subsequent amendment in the Insolvency and Bankruptcy Code, 2016 ('IBC') by which Section 10A was inserted.

This amendment suspended, as a COVID-19 relief measure, all creditor and corporate debtor led applications in India's Bankruptcy Courts. Now that this suspension has been lifted, this article will strive to propose a mechanism under which both IBC and Schemes can work hand-in-hand in corporate rescue moving forward. This article will also elaborate on the rights which creditors possess under the Companies Act and IBC and how both of them can be used in conjunction to safeguard their interests.