Insolvency and Bankruptcy Code, 2016 (“The Code”) is the bankruptcy law which contains provisions related to insolvency of companies, partnership firms and individuals.
Ministry of Corporate affairs issued a press release dated 17th July, 2019 specifying that Union cabinet approved the proposal to introduce Insolvency and Bankruptcy Code (Amendment) Bill, 2019 (“The Bill”) in parliament on 17th July, 2019 itself. The bill will propose 8 amendments in the code.
Major objective of the bill is to fill the critical gaps in the corporate insolvency resolution framework with simultaneously maximizing value from Corporate Insolvency Resolution Process (“CIRP”). CIRP section of the code deals with insolvency resolution process of corporate debtors.
Through this bill, government intends to ensure maximization of value of a corporate debtor as a going concern while simultaneously adhering to strict timelines.
Gist of amendments proposes by the bill is as follows:
- The bill provides clarity on allowing comprehensive corporate restructuring schemes such as mergers, demergers, amalgamations etc as part of the resolution plan.
- As procedure of insolvency takes undue time therefore, the bill places a greater emphasis on the need for time bound disposal at application stage.
- Bill also proposed a deadline of 330 days of completion of CIRP process including litigation and other judicial processes. At present code provides time limit of 270 days. However, at present, there are a lot of delay in admission of applications and many cases are going on longer.
- 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.
- The bill shall also contain a specific provision that financial creditors who have not voted in favor of the resolution plan and operational creditors shall receive at least higher of the following amounts:
- The amount that would have been received by him if the amount to be distributed under the resolution plan, if it would have been distributed in accordance with section 53 of the Code, or
- the amount that would have been received by him if the liquidation value of the corporate debtor had been distributed in accordance with section 53 of the Code,
- Further, such amendment will have retrospective effect in those cases where resolution plan has not attained finality or has been appealed against.
- Inclusion of commercial consideration in the manner of distribution proposed in resolution plan, within the powers of the Committee of Creditors.
- The bill will also provide a clarity that the plan shall be binding on the all stakeholders including the Central Government, any State Government or local authority to whom a debt in respect of the payment of the dues may be owed.
- Bill will make an amendment to provide 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.
Accordingly, the bill aims at timely completion of CIRP, greater clarity on permissibility of corporate restructuring scheme, manner of distribution of amounts amongst financial and operational creditors, clarity on rights and duties of authorized representatives of voters and applicability of the resolution plan on all statutory authorities.