Amid talk about recent amendments in the Insolvency and Bankruptcy Code, what got missed was the fight over authority between the judiciary and the government, an issue on which the latter seems to have prevailed. The amendments have overturned two important orders passed by the National Companies Law Appellate Tribunal (NCLAT) in the Essar Steel insolvency case. The position that emerged from the orders was that financial and operational creditors must be given similar treatment, which means both taking similar haircuts, and that the Committee of Creditors (CoC) has no role in distribution of proceeds of the resolution plan among financial and operational creditors.
The amendments proposed by the government contradict the NCLAT positions on both counts. It says the CoC has the final say in commercial consideration in the manner of distribution proposed in the resolution plan, and that it can take into account the order of priority among creditors, including the priority and value of the security interest of a secured creditor.