Creditors, Debtors may be allowed to reach agreements outside NCLT under new mechanism: Report

Another Indian airline Go First has gone bankrupt as its aircraft are stuck on the tarmac, as it awaits resolution in the National Company Law Tribunal. But its voluntary insolvency application comes as Jet Airways' return is still stuck as NCLT resolved its case four years after it was grounded.

As more than 12,000 cases under the Insolvency and Bankruptcy Code (IBC) are pending with NCLT, the Indian government is mulling an alternate mechanism to reduce the burden.

Encouraging cooperation between creditors and debtors

According to an Economic Times report, the new route for resolution will be led by creditors, who will work out an informal agreement with debtors.

Once both parties are on the same page, they can approach the NCLT with the case, which can be resolved quickly.

All stakeholders will be roped in by the government, before coming up with a final framework to speed up bankruptcy resolution.

NCLTs overburdened due to delays

The current number of NCLT branches is already not enough to handle bankruptcy cases, and the corporate insolvency process required under the IBC, is causing delays due to legal challenges.

The new mechanism will cut down litigation and allow abjudicators to oversee resolutions quickly.

Although similar to a pre-packaged scheme that allows creditors and micro or small enterprises to work out mutual agreements, the new mechanism will come with reasonable restrictions in the bidding process.