IBBI board to discuss CoC Code of Ethics next week; may get notified by Oct

Insolvency and Bankruptcy Board of India (IBBI) will hold a board meeting next week to discuss the Code of Ethics for the committee of creditors (CoC) involved in insolvency cases in the wake of deep haircuts taken by the banks and financial institutions in recent cases of insolvency resolution. Sources in the Corporate Affairs Ministry have pointed out that if the Code of Ethics is approved by the IBBI board, they will be notified soon.

A top government source told Business Today, "IBBI board will deliberate on the discussion paper on the Code of Ethics for CoC in its meeting on September 27. If the board approves them, the same will be notified by the mid of the next month." The source pointed out that no amendment to the Insolvency and Bankruptcy Code is needed for the implementation of the Code of Ethics for the creditors, and that the rules will be notified under the IBBI regulations.

Also read: 5 years of bankruptcy code and beyond

It may be noted that in the entire insolvency ecosystem, the CoCs are the only bodies that do not have any regulation. The other players like insolvency professionals and valuation professionals are guided by statutory regulations.

The government's decision has been prompted by stern observations by the adjudicating authority, National Company Law Tribunal (NCLT) as well as the Parliamentary Standing Committee on Finance, on the deep haircuts of 90-95 per cent in some of the recent resolution cases. While the Mumbai NCLT raised concerns on whether the CoCs are taking haircuts or complete shave, it is the parliamentary standing committee on finance that first called for setting up a code of ethics for the creditors in its report tabled in Parliament in August first week.

Also read: No evidence of high asset prices feeding in general inflation: Shaktikanta Das

The case in point being the Videocon Industries matter, in which the CoC led by the State Bank of India (SBI) has taken a massive 95.85 haircut by approving a resolution plan of Rs 2,962 crore against the admitted claim of Rs 64,838 crore. In a U-turn now, the lead banker has approached the NCLT yet again for calling fresh bids in the Videocon case.

Another recent example being Siva Industries, in which the CoC agreed on a settlement offer at a 93.5 per cent haircut, with recoverable of only Rs 328 crore against the admitted claims worth Rs 4863.87 crore.
Immediately after the strong observation by the adjudicating authority and the parliamentary standing committee on finance, the IBBI circulated a draft paper on the Code of Ethics for the CoCs and invited public comments on the issue. The draft listed out various instances of irregularities on part of the CoC in several resolution cases in the past couple of years. The draft and the public comments will be deliberated upon in the next meeting of the board on September 27.

Also read: Banks' NPAs stable in June quarter; IBC needs improvement: Shaktikanta Das