Cabinet approves seven amendments to IBC for easier resolution

Insolvency & Bankcruptcy Code AmmendmentsThe Union Cabinet cleared seven amendments to the Insolvency and Bankruptcy Code (IBC) during its meeting on Wednesday 17th July  which will allow the government to stick to strict timelines, and simultaneously, maximise the value of an insolvent entity from the resolution plan as a going concern.

  • The amendments will also aid decision-making in the case of bankrupt entities such as property developers.
  • The amendments aim to fill the critical gaps in the country’s corporate rescue framework, says the government.

The amendments are aimed at speeding up the bankruptcy resolution process that has been mired in litigation and correcting anomalies that have crept into its functioning since the law came into force in 2016.

Promoters of large bankrupt companies have been steadfastly resisting loss of control over their business by challenging decisions of lenders and bankruptcy tribunals in higher courts.

The eight amendments to the Insolvency and Bankruptcy Code(IBC) will also aid decision-making in the case of bankrupt entities such as property developers, which have a large number of creditors, including homebuyers.

Most important among these amendments, Cabinet cleared that the resolution process has to be completed within 330 days, including litigations and other judicial process. Presently, the resolution plan for an insolvent company has to be cleared within 270 days. Once the proposed amendments are cleared by Parliament, the clock will be ticking even during litigation, said Injeti Srinivas, secretary in the ministry of corporate affairs.

Another important amendment approved by the Union Cabinet clarifies the rights of financial as well as operational creditors who have not spoken in favour of a resolution. The amendment proposes that they will be paid as per their hierarchy specified in the IBC. The Code gives the highest priority to those who have brought interim finance to meet the costs of resolution or liquidation, followed by dues to workers for the past two years and dues to secured creditors in equal priority. Employees other than workmen, and unsecured creditors and operational creditors are further down the line in the priority of receiving resolution or liquidation proceeds.

Another crucial amendment to the IBC approved by the Cabinet mandates that the bankruptcy resolution or liquidation decided under the bankruptcy framework is binding on central, state and local governments, to whom the insolvent company owes dues. This will prevent state authorities including income tax officials from questioning a rescue plan adopted in a court-monitored process.

The amendments proposed also rework voting rights in the case of companies where there are a large number of creditors such as homebuyers and bondholders. The idea is to make decision-making easier even if a large number of them do not take part in voting. According to the new formula, if more than half of these creditors who are present approve a plan, it will be considered that the entire class of creditors has approved it.

Source: Live Mint, Business Today

 

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