Finance Minister Nirmala Sitharaman has proposed The Insolvency and Bankruptcy Code (Amendment) Bill 2019 in the Rajya Sabha on Wednesday. The bill seeks timely completion of debt resolution process under IBC and provides more clarity on the rights of stakeholders. The finance minister has sought seven amendments to the Insolvency and Bankruptcy Code, which will provide for faster resolution of bad loans. The amendments aim to fill critical gaps in the corporate insolvency resolution framework and also seek to maximise value from resolution. Timely admission of applications and timely completion of the corporate insolvency resolution process are also among the agendas of Nirmala Sitharaman-proposed amendments.

Key proposals

• Under the bill, the adjudicating authority will now be required to provide written reasons in writing if the authority fails to admit or reject the received application within 14 days.
• The new resolution deadline for completion of CIRP (Corporate Insolvency Resolution Process) is now limited 330 days, including litigation and other judicial processes.
• With the proposed changes, greater clarity on the rights and duties of authorised representatives of voters, the permissibility of corporate restructuring schemes, manner of distribution of amounts amongst financial and operational creditors as well as the applicability of the resolution plan on all statutory authorities is expected.
• According to the bill, the Committee of Creditors may now take the decision to liquidate the corporate debtor. This can be done any time after the Committee of Creditors has been constituted and before preparation of Information Memorandum.
• Provision has been made for votes of all financial creditors covered under section 21(6A). The votes shall be cast in accordance with the decision approved by the highest voting share (more than 50%) of financial creditors on present and voting basis.
• The bill also says that the resolution plan will be binding on all the stakeholders including the Central Government, any State Government or local authority to whom the debt is owed.

Analysis of bill:

1. Clarity on allowing comprehensive corporate restructuring schemes such as mergers, demergers, amalgamations etc as part of the resolution plan.- It appears that the amendment aims to allow resolution applicants to propose merger, demerger, amalgamation, etc as part of the resolution plan and once approved by the NCLT then the same would be deemed to have come into effect without any further steps or actions to be taken under any other law (like Companies Act, etc). This aims to bring the concept of ‘single window clearance’ under IBC and would be a welcome step as it would save a lot of procedural and compliance issues under various other applicable corporate laws.
2. Greater emphasis on the need for time bound disposal at application stage.
3. Mandatory deadline for the completion of the resolution process within 330 days, including all litigation and judicial processes.
4. Votes of all financial creditors covered under Section 21(6A) shall be cast in accordance with the decision approved by the highest voting share [more than 50%] of financial creditors on present and voting basis- This would help speed up the decision making process in companies which have large pool of financial creditors like homebuyers, bondholders, etc. In such situation decision making of that set of financial creditors will be based on the decisions taken by more than 50% of the ‘present and voting’ financial creditors belonging to such class. Now the operative part is ‘present and voting’ which basically means this can actually reduce the say of the said pool of financial creditors since the decision making has to be on the basis of financial creditors of that class who are ‘present and voting’. A practical implementation of this amendment needs to however be seen in cases where the voting is not done on the spot but is done through e-voting process.
5. A specific provision that financial creditors who have not voted in favor of the resolution plan and operational creditors shall receive at least the amount that would have been received by them if the amount to be distributed under the resolution plan had been distributed in accordance with section 53 of the Code or the amount that would have been received if the liquidation value of the corporate debtor had been distributed in accordance with section 53 of the Code, whichever is higher. This will have retrospective effect where the resolution plan has not attained finality or has been appealed against.
6. Inclusion of commercial consideration in the manner of distribution proposed in resolution plan, within the powers of the Committee of Creditors.
7. Resolution plan will be binding on all the stakeholders, including governments, to whom a debt is owed.
8. Clarity that the Committee of Creditors may take the decision to liquidate the corporate debtor, any time after constitution of the Committee of Creditors and before preparation of Information Memorandum

The available data analysis demonstrates that there are delay in admission of applications and Corporate Insolvency Resolution process. The changes are expected to allow all possible corporate actions as part of the proposed resolution plans can also help save time and effort for applicants and lead to timely admission of applications and timely completion of the Corporate Insolvency Resolution Process.

The overall objective of the government to achieve the outcomes envisioned in the Insolvency and Bankruptcy Code and seeks to ensure speedier resolution of cases involving corporate debtors and it also maximize the outcomes envisioned in the Code.

Click here to read the bill: Insolvency & Bankruptcy Amendment Bill, 2019

Source: Financial Express, July 25, 2019