Juggling Speed and Competition: The Case Against Green Channel Approvals in Corporate Insolvency Resolution
The Corporate Insolvency Resolution Process (CIRP) in India has a big problem: the average length to close a CIRP is around 640 days, much more than the legally required limit of 330 days. This delay has spurred discussions about including a green channel option under resolution strategies for mergers. Still, this suggested fix could generate more issues than it addresses.
The Current Framework: Its Difficulties
Under the current system, prior approval from the Competition Commission of India (CCI) is needed before the Committee of Creditors (CoC) can approve a resolution plan under the Insolvency and Bankruptcy Code (IBC) involving a combination meeting the threshold under the Competition Act 2002. This dual need seeks to balance two important goals: ensuring market competitiveness by regulatory control and defending creditors’ interests by quick resolution.
The Green Channel Mechanism’s Mistakes
Introduced in 2019, the green channel path offers automatic approval of combinations once the CCI accepts the request. This poses major hazards even if it would seem to speed up the procedure. Seeking automatic approval, the CoC may ignore possible significant negative consequences on competitiveness (AAEC). If the combination is later discovered to inflict incurable damage to market competitiveness, this control could prove disastrous.
This worry is supported historically by data. The CCI has directed revisions to 29 mergers and combinations, many including structural changes that fundamentally modify the relationship between acquirers and target enterprises. Should such problems arise following post-approval, the CCI may have to order asset disentanglement using a green channel method, hence possibly putting the business into liquidation.
The Fallacy of CCI-Related Delays
The case for green channel certification is predicated on the belief that CCI clearance greatly slows CIRP completion. Empirical data, however, points different directions. Examining 12 main CIRP-related combinations found that, although the average CIRP duration was 585 days (254 days beyond the required period), CCI clearance took only 35 days on average – just 5% of the total duration. This information amply shows that CIRP delays are not mostly caused by CCI approval.
Other Ideas for Quickening CIRP
Several more solutions could speed the procedure while preserving required competition protections instead of using the green channel mechanism:
Expedited Approvals: The CCI already handles CIRP combinations about 20 days faster than standard combinations. Referred to in the Insolvency Law Committee Report 2018, this accelerated strategy might be explicitly legislated to guarantee consistent application.
Simplifying Approval Guidelines: It is ineffective for all possible buyers to have CCI approved before CoC review. Changing this to call for CCI clearance just for CoC-approved designs will save time and money while preserving regulatory control.
World Context and Best Standards
Global trends contradict the suggested turn towards a green channel mechanism. Emphasising the need of previous regulatory clearance for major combinations, major economies including Australia, UAE, Saudi Arabia, and Egypt are heading towards suspensory regimes.
Legal Certainty against Accelerated Procedure
The main disadvantage of the green channel system is its ambiguity for interested parties. Without knowing if the CCI may subsequently call for major changes or asset disentanglement, creditors and acquirers would find it difficult to commit resources to restructuring plans. Actually, this ambiguity can reduce the efficacy of the CIRP rather than improve it.
Conclusion
Although speed of CIRP is absolutely vital, the green channel mechanism marks a possibly harmful overcorrection. Targeting specific reforms that eliminate real causes of delay while preserving required competition protections should so take front stage. India can accomplish more effective insolvency resolution without sacrificing market competitiveness by codifying accelerated approval procedures for CIRP combinations and simplifying the approval sequence.
Harmonising the goals of the IBC and Competition Act by means of modest improvements instead of all-encompassing legislative revisions would help to guide the road ahead. This strategy would safeguard market competitiveness as well as creditor interests, thereby guaranteeing long-term results for the corporate restructuring scene of India.
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