Any business, regardless of its success, faces financial ups and downs. When financial distress strikes and a company struggles to meet its obligations, debt restructuring becomes crucial. Section 230 of the Companies Act, 2013, provides a legal framework for companies to reorganize their debt through plans, arrangements, and compromises.
Section 230 allows companies to propose restructuring plans to creditors and members, aiming to prevent bankruptcy while protecting stakeholders' interests. Before approval by the NCLT, these schemes require substantial creditor consent, ensuring significant creditor support.
Under the Insolvency and Bankruptcy Code, 2016, companies can undergo insolvency resolution to reorganize and revive operations. If the resolution plan fails or is not approved, liquidation proceedings may ensue, emphasizing the IBC's goal to protect corporate debtors.
Despite the comprehensive coverage of corporate insolvency in the IBC, Sections 230-231 of the Companies Act, 2013, remain relevant for compromises and arrangements, complementing the IBC's procedures.
Both Section 230 and the IBC impact corporate insolvency, offering distinct yet complementary approaches. Section 230 initiates voluntary debt restructuring, contrasting with the IBC's creditor-focused resolution mechanisms.
Legal interpretations, such as those from the NCLAT, clarify Section 230's applicability in insolvency scenarios, ensuring alignment with the IBC's objectives and regulatory framework.
Withdrawal under Section 12A of the IBC contrasts with Section 230's compromise processes, highlighting different legal outcomes and procedural implications.
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