Albana Rama’s Post

In March 2024, the Singapore Court of Appeal in Kyen Resources Pte Ltd (in compulsory liquidation) and others v Feima International (Hongkong) Ltd (In Liquidation) and another matter [2024] SGCA 7 clarified the limits to a liquidator’s ability to assert crossclaims to defeat claims in a creditor’s proof of debt. The court additionally clarified the law on transnational issue estoppel for cases where separate insolvency proceedings are ongoing in different jurisdictions.   The case concerned two companies in liquidation, Feima and Kyen. Feima’s liquidators had lodged a proof of debt against Kyen for US$49,355,996.30. Kyen’s liquidators rejected Feima’s proof of debt and alleged that Kyen had crossclaims against Feima that exceeded the claim in Feima’s proof of debt. Feima argued that because Kyen had previously asserted the same crossclaims in the Hong Kong liquidation of Feima and was rejected, Kyen should be estopped from asserting the same crossclaims in Singapore.   First, the court held that a crossclaim by a company in liquidation cannot be accounted for in the adjudication of an unsecured creditor's proof of debt in circumstances where a set-off is not available. In this case, Kyen’s crossclaims could not form the subject of insolvency set-off. This was because Kyen's crossclaims, which were for dishonest assistance and knowing receipt, involved no mutual credits, mutual debts, or other mutual dealings with the claim in Feima's proof of debt. Although the court noted that other forms of set-off like equitable set-off may also be permitted in the proof of debt process, the court declined to express a firm view on its permissibility as Kyen did not rely on equitable set-off.   Second, the court held that where the crossclaim asserted by the liquidators is substantially disputed and factually complex, the liquidator may be required to apply to the court for directions on resolving the crossclaim instead of summarily dealing with it in the adjudication process.   Third, the court decided that Kyen was not estopped by the doctrine of res judicata from pursuing the same crossclaims in the Singapore liquidation of Kyen after their proof of debt for the same crossclaims were rejected in the Hong Kong liquidation of Feima. In this case, the dispute was transnational and involved two separate liquidations under two different jurisdictions. The crossclaims were also asserted before the Singapore and Hong Kong courts for distinct purposes, and in proceedings that were distinct in nature. In these specific circumstances, the court held that the doctrine of res judicata was not applicable and no forum election needed to be made.   Read more here: https://lnkd.in/ga3_VBsH, https://lnkd.in/gN4gPBja #liquidation #insolvency #restructuring

Practical Guide to Bankruptcy and Suspension of Debt Payment Obligations (PKPU) in Indonesia 1. Definition and Legal Basis Bankruptcy is a condition where a debtor is unable to pay debts that are due and collectible. It is governed by Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations (PKPU). 2. Bankruptcy Filing Process Only creditors with debts that are due and payable can file for bankruptcy at the Commercial Court. Disputes over the amount of debt must be resolved before a bankruptcy ruling through the Renvoi Process. 3. Time Limits for PKPU Suspension of debt payment obligations (PKPU) has a maximum time limit of 270 days. No extensions are allowed after this period ends. 4. Rights of Creditors and Debtors Creditors have the right to file claims if the debtor defaults. Debtors are entitled to request debt restructuring during the PKPU process. Taxes are prioritized in the distribution of bankrupt assets. 5. Role of Curators in Bankruptcy Curators are responsible for managing and liquidating the bankrupt assets. Curators can act without court approval to seize bankrupt assets. Curator appointments should consider the complexity of the case and the number of creditors involved. 6. Industrial Relations Disputes and Bankruptcy If a debtor is involved in an industrial relations dispute at the Industrial Relations Court (PHI), the process at PHI may be deemed void if the debtor is declared bankrupt. 7. Sale of Bankrupt Assets The sale of assets via auction does not require a judge's approval, except for sales conducted privately. 8. Bankruptcy of Legal Entities in Liquidation Legal entities undergoing liquidation can still be declared bankrupt as long as the process of asset liquidation has not been complet

SBB surprise swap seeks to reduce insolvency risk All restructuring negotiations have some element of game theory. To use a frequent analogy, you may know who has the handgun, the automatic weapon, grenade, and the knife, but do you know if they are willing to use it, and who will shoot first? Often junior creditors threaten to blow-up a process. Yes, they destroy the little value they have left, but it also mortally wounds the seniors too. Or you could be a hold-out creditor who tells the rest they are prepared for the deal to fail. If you are convincing enough, you might get a better outcome than the others via a side deal, or get bought out at a premium. This is why most deals are structured to incentivise you to accept early doors - otherwise, you are motivated to sit and wait and see how the situation develops. But we've seen some sits where a small rump of debt is left. Sure it might be illiquid and pay less than the reinstated debt, but still sits at the front of the maturity queue. You may get paid out at par earlier than those who accepted the term-out and get a better IRR. That is why a few coercive offers have appeared in recent years, putting jeopardy into the mix and further incentivise early acceptances. The abortive Keter exchange in late 2022 - and Vivion in summer 2023 spring to mind - both sought to severely disadvantage those left behind, severely testing the resolve of creditors. And this week SBB turned up the dial, with its exchange offer. Facing a court case in January, where Fir Tree and other bondholders are seeking a determination of an interest cover breach and their right to accelerate on their debt, SBB has offered hybrid and senior bondholders an exchange offer. The new notes are issued out of a new entity - which following a series of transactions will hold 96% of SBBs assets, but by swapping you will lose the maintenance covenant, and there is no cross-default between OldCo and NewCo. SBB is offering cash for tendering 2025 holders, who may be concerned it may not be able to pay if it loses the court case. The hybrids are elevated to senior status but mature a month later than the others. The number of holders that accept this coercive LME transaction will probably determine whether SBB can escape insolvency if it loses in court. This is where the game theory kicks in. Stay in the old debt and accelerate for 25 points upside, or exchange and get collateral protection and reduce the insolvency risk. If too many stay, SBB may not pay you out in full, and be forced to file OldCo - which doesn't cross-default NewCo. Holders have just a week to accept. SBB has already tinkered following feedback, and there's a decent chance it may come back if it doesn't get sufficient acceptances. For more SBB game theorizing and a raft of Octus distressed scoops, check out the EMEA Special Sits Weekly.

Details about Section 5(8) of IBC :- Section 5(8) of the Insolvency and Bankruptcy Code (IBC), 2016 defines the term "financial debt", which is central to insolvency proceedings in India. The section specifies what qualifies as a financial debt and provides clarity on claims that can be considered for initiating the Corporate Insolvency Resolution Process (CIRP). Key Aspects of Section 5(8): Definition: Financial debt refers to a debt that is disbursed against the consideration for the time value of money. It includes, among other things: Money borrowed against interest. Any amount raised through financial instruments like bonds, debentures, or other similar securities. Amounts raised under any credit facility or loan. Lease or hire-purchase agreements if such arrangements are classified as a financial lease. Receivables sold or discounted other than on a non-recourse basis. Derivatives and other financial transactions. Specific Inclusions: Section 5(8) explicitly includes certain types of debt, such as: Liability arising from a guarantee or indemnity for any financial debt. The unpaid dues of any forward sale or purchase agreement (if such dues are intended to be adjusted over time). Time Value of Money: A distinguishing factor of financial debt is the consideration of "time value of money," making it different from operational debt under the IBC. This aspect emphasizes the long-term benefit to the lender, typically seen in loans or similar financial arrangements. Purpose in IBC: Establishes the eligibility of creditors (financial creditors) to initiate CIRP. Grants financial creditors voting rights in the Committee of Creditors (CoC) based on the proportion of the financial debt owed to them. Importance of Section 5(8): It ensures clear differentiation between financial debt and operational debt, which is crucial for priority and repayment hierarchy in insolvency resolution. It facilitates the efficient resolution of insolvency by allowing financial creditors to have a more significant role in decision-making processes.

NCLT Dismisses JC Flowers ARC's Claim Against HDIL: A Critical Analysis In a significant ruling, the National Company Law Tribunal (NCLT) has rejected JC Flowers ARC's claim against HDIL under the Insolvency and Bankruptcy Code (IBC). This decision has far-reaching implications for lenders, debtors, and the insolvency landscape. Key Takeaways 1.⁠ ⁠Financial Debt Classification: The NCLT clarified that providing collateral does not constitute financial debt under IBC. 2.⁠ ⁠Third-Party Collateral: Mere mortgaging of assets for a loan taken by another party does not create financial debt. Tribunal's Reasoning •⁠ ⁠Financial debt requires actual disbursed funds to the corporate debtor. •⁠ ⁠HDIL's assets were mortgaged as security for Carnival Films' loan, but HDIL did not receive any funds directly. •⁠ ⁠Yes Bank's claim for loan recovery from Carnival Films is separate from HDIL's insolvency proceedings. Broader Implications 1.⁠ ⁠Lender Protection and Clarity: Lenders relying on third-party collateral cannot claim creditor status without direct financial debt. 2.⁠ ⁠Debtor Protection: Companies providing collateral for loans extended to third parties are safeguarded from insolvency proceedings. Conclusion The NCLT's decision reinforces the strict interpretation of financial debt under IBC, distinguishing between financial debt and collateral-backed arrangements. This ruling will impact secured lenders' recovery strategies in insolvency cases involving third-party collateral, providing clarity for lenders and debtors. Insights •⁠ ⁠Lenders must establish direct contractual relationships with borrowers. •⁠ ⁠Collateral arrangements alone do not establish financial creditor status under IBC. •⁠ ⁠Debtors are protected from insolvency proceedings when providing collateral for third-party loans. Incorp Restructuring Services LLP (IPE)

If you haven't had a chance to read it yet, tap into this good series by Donald Swanson on ABI's Subchapter V Task Force Report! Below is Part 2 of the series. To access a full copy of the report, be sure to visit https://lnkd.in/eKn_QSBG

Q.1. Whether a Financial Creditor (FC) retains its right to initiate insolvency proceedings under the Code, even after invoking pledged shares or converting debt into equity ? Q.2. Whether ongoing proceedings alleging Oppression and Mismanagement under Companies Act, 2013, affect the right of FC to file an application under Sec. 7 of the IBC ? The intersection of Financial Debt, Shareholder Rights, and Insolvency Proceedings under the IBC has once again been clarified in the matter of Entegra Limited vs. Shree Maheshwar Hydel Power Corporation Ltd. Key Points: 1. Right to File Sec. 7 Application: The NCLAT reiterated that FC do not lose their rights to file a Sec. 7 application under the IBC, even if they invoke pledged shares or partially convert debt into equity. This interpretation aligns with its decision in India Power Corporate Ltd. vs. Meenakshi Energy Ltd., which attained finality as it was not challenged before the Supreme Court. 2. Validity of Recall Notices: • The recall notice issued by the FC was found valid. The notice detailed the debtor's default and demanded repayment of outstanding amounts within a specified timeframe. • The Judicial Member emphasized that while Sec. 7 of the IBC does not mandate issuing a recall notice, such notices are common in commercial practice and align with principles of natural justice. 3. Additional Loan Agreement: • The tribunal rejected claims of fabrication regarding additional loan agreements, recognizing them as genuine attempts by lenders to support distressed CD. • The board meeting minutes confirmed the promoters' consent to the loan, countering claims of malintent by the lender. 4. Impact of Oppression and Mismanagement Application: • Reliefs granted under Sec. 241 and 242 of the CA, 2013, concerning invocation of pledged shares, were determined to have no bearing on the validity of the Sec. 7 application. • NCLAT noted that procedural lapses during share invocation did not affect the FC substantive rights. 5. Distinction Between Judicial Interpretations: • The Judicial Member focused on debt acknowledgment in financial statements and other admissions of liability, validating the claim's legitimacy. • The Technical Member raised concerns about the lender’s management control but lacked substantive analysis to prove malafide intent in issuing the recall notice. 6. Vidarbha Judgment Inapplicability: • The NCLAT clarified that the principles laid down in the Vidarbha Industries Power Ltd. case were not applicable, as the present case involved clear evidence of debt and default. Final Decision: The NCLAT upheld the admission of the Section 7 application by the NCLT, ruling in favor of the FC. It concluded that: • The FC rights under the IBC remained intact despite its temporary status as a shareholder. • The recall notice and additional loan agreements were valid, and claims of malafide intent were unsupported. #Insolvency #IBC #NCLT #NCLAT #IBBI #ICSI #ICAI #ICMAI #IIIPICAI #IBC2024

The Insolvency and Bankruptcy Board of India has amended the Insolvency and Bankruptcy Board of India (Information Utility) Regulations, 2017 ('IU Regulations'). The amended regulations shall come into force on 1st October, 2024, barring Regulations 3 & 5, which shall come into force on 1st December, 2024. Q. What are IUs? An IU, established and registered with IBBI under Section 210 of the Insolvency and Bankruptcy Code, 2016. The language of the code and the regulations intend to make IU as a primary information repository for effective channelization and systematic dissemination of financial information. The core services of the IU are well defined in the Section 3(9) of the Code. At present, India only has one IU i.e., National E-Governance Services Limited. Q. What are the key amendments made to the IU Regulations? 1. The board has amended the Regulation 21(2)(a) to specify that the IU shall deliver the information of default to the debtor seeking confirmation of the same within seven (7) days. Further, by amending Regulation 21(2)(b), the board has extended the time period from three (3) days to seven (7) days in respect of the reminders to be sent by the IU in case the debtor does not respond. 2. The board has amended Regulation 21(2)(c)(iii) to effectuate delivery of default information to the debtor as per the details encapsulated in the Form C submitted by the (a) Financial Creditor, and (b) by any other creditor. This amendment intends to further the aim of proper delivery of information to the debtor so to avoid any legal challenges at a later stage. 3. The Board has also added a provisio in Regulation 21(3) after the Table 2 to provide that in respect of Financial Creditors, when a debtor disputes a part of the default amount which is in respect of only non-financial information', then the IU shall record the status of authentication as 'authenticated' in respect of the undisputed default amount. This amendment enables the Financial creditors to file Record of Default even if the partial amount is disputed. 4. The board has renumbered the Regulation 21A to 21B & has now added a new Regulation 21A: (1). The IU shall follow - while verifying the information before issuance of a record of default, the same includes key details such as email addresses, documents pertaining to the proof of debt, acknowledgment of debt, proof of default, etc. The said regulation appears to be a inclusive one. (2). If the debtor disputes the default information, it shall provide the reasons for such disputes along with proof. (3). In case of Financial creditors, the IU shall issue a record of default with the 'disputed' authentication for the default amount for which evidence of dispute has been received and verified, and issue record of default with the status of authentication as 'Authenticated' in respect of the balance default amount. This has to be read with the newly added Provisio to Regulation 21(3). #ibc #insolvency #ibclaws #ibbi

Introduction In accordance with the Insolvency and Bankruptcy Code (IBC), the definition of "financial debt" has been subjected to a comprehensive review by the judicial system. As a result, courts and tribunals have provided in-depth insights into the many types of financial transactions. During a recent case, the National Company Law Appellate Tribunal (NCLAT) discussed the question of whether or not an advance payment made in accordance with an oral agreement for the acquisition of shares is considered to be "financial debt" in accordance with the Insolvency and Bankruptcy Code (IBC) (citation: (2024) ibclaw.in 63 NCLAT). A Comprehensive Understanding of the Concept of "Financial Debt" The International Business Code (IBC) gives a thorough definition of the term "financial debt" in its section 5(8). This definition encompasses not only a debt but also any interest that is given in exchange for the worth of money over their lifetime. Section 5(7) states that the term "financial creditor" refers to any person or organisation that is owed a financial debt. This definition includes any people or entity. In spite of the fact that the definition is so broad, the judicial system continues to have the authority to determine what constitutes "financial debt." The Meaning of 'Financial Debt' in the International Business Code has been shaped by a number of significant precedents. It is significant that the Supreme Court has decided that loans that do not incur interest are included in the definition of the phrase "financial debt." In addition to the fact that it is vital to place an emphasis on the understanding of the time value of money, transactions that indicate the economic impact of borrowing may also be characterised as "financial debt." The verdict of NCLAT: It has been decided by the Supreme Court that loans that are not subject to interest and are given to a corporation in order to sustain its commercial operations are regarded to be "financial debt." The IBC is guaranteed to include a wide variety of financial agreements as a result of this verdict, which shows the enormous range of the term. The National Company Law Tribunal (NCLAT) overturned a verdict by the National Company Law Tribunal (NCLT) and declared that a security deposit, which includes interest, given by a corporate debtor is regarded to be "financial debt." When establishing the parameters of a financial transaction, it is essential to take into account the time value of money, as this highlights the relevance of this component. Through the Corporate Insolvency Resolution Process (CIRP), the National Company Law Appellate Tribunal (NCLAT) has confirmed that when a corporate debtor gives a guarantee, the entity in question becomes a financial creditor. This pertains to a loan for a group entity. The understanding of financial transacti

Budget 2024-Technology-IBC-Debt Recovery-Law Practice The 2024 budget aims to modernize the legal and judicial framework through technology. The budget shows the commitment to enhancing the efficacy of the Insolvency and Bankruptcy Code (IBC) and aims to establish an Integrated Technology Platform with the following objectives: 1. Achieving better results in insolvency proceedings. 2. Standardizing processes across cases. 3. Providing clear and transparent procedures for all stakeholders. 4. Accelerating the resolution of insolvency cases. 5. Offering improved monitoring and control mechanisms. Additionally, the Centre for Processing Accelerated Corporate Exit (C-PACE) services will be extended to include the voluntary closure of Limited Liability Partnerships (LLPs). This measure aims to streamline the process for efficiently winding up LLPs and reduce closure time. The budget has recognized the instrumental role of the National Company Law Tribunals (NCLT) in resolving insolvency cases under the IBC, noting: 1. Over 1,000 companies have been resolved, with a direct recovery of more than ₹3.3 lakh crore for creditors. 2. Approximately 28,000 cases involving over ₹10 lakh crore have been disposed of prior to admission. 3. Changes to the IBC, along with reforms and enhancements to both tribunal and appellate tribunal operations, will be undertaken. 4. New tribunals will be established, with some designated exclusively for cases under the Companies Act. The budget emphasizes Debt Recovery Tribunal reforms to expedite debt recovery processes, aiming to enhance the efficiency and effectiveness of these tribunals. It also proposes setting up more tribunals to speed up the debt recovery process. For advocates practicing in bankruptcy and debt recovery, this is promising news. However, it remains to be seen to what extent these measures will be realized on the ground, as appointments to the tribunals have never been a priority, getting tech-friendly judges is also a big challenge, and poor net connectivity many a time resulting in tarikh pe tarikh, frustrates clients' interests and advocates are the worst sufferers of this process.