GlaxoSmithKline escapes insolvency proceedings by clearing Rs 8 lakh due
The regulator and policy-makers alike have time and again reiterated that the Insolvency and Bankruptcy Code (IBC) is not a legislation for recovery but resolution. However, there is no denying the fact that insolvency code has been used by many, especially the operational creditors as a recovery tool. Take for example the case of GlaxoSmithKline Pharma, which was dragged to insolvency court by one of its operational creditors.
M/S Industrial Security had moved NCLT Mumbai bench seeking to start insolvency proceeding under Section 9 of the IBC against GlaxoSmithKline for a non-payment of Rs 8,41,139. The case was never admitted by the NCLT and the same was withdrawn after GlaxoSmithKline makes the aforementioned amount to the operational creditor.
GlaxoSmithKline is a profit-making company, which posted an annual profit of Rs 110 crore in 2019-20. In the six-month ended 30 September 2020, the company has posted a net profit of Rs 187 crore.
There are thousands of insolvency applications that are settled even before NCLT admitting those cases. According to Insolvency and Bankruptcy Board of India (IBBI), 14,884 applications for initiation of insolvency process against corporate debtors having underlying default of Rs 5,15,170 crore were resolved before their admission.
The latest quarterly newsletter of IBBI says that “The credible threat of the Code that a CD may change hands, has changed the behaviour of debtors. Thousands of debtors are resolving distress in early stages of distress. They are resolving when default is imminent, on receipt of a notice for repayment but before filing of application, after filing of application but before admission, and even after admission of the application, and making best effort to avoid consequences of resolution process.”
Even after admission of insolvency application, many creditors, mostly operational creditors, are settling their case before resolution or liquidation. About 51% of operational creditors initiated CIRPs were closed on appeal, review, or withdrawal. Such closures accounted for about 70% of all closures by appeal, review, or withdrawal.
