UNION CABINET’S APPROVAL FOR IBC AMENDMENTS, 2019

The Union Cabinet on 17th July 2019 approved the proposal to carry out eight amendments to the Insolvency and Bankruptcy Code, 2016. The Insolvency and Bankruptcy Code Amendment Bill, 2019 requires the approval of both the houses of Parliament. It aims to fill in the crucial gaps in the framework of CIRP to provide clarity in its implementation.

Important considerations regarding the amendments of IBC (Insolvency and Bankruptcy Code Amendment Bill, 2019) are provided below: –

 

  • Extension of Deadline: –

Amendment focuses on extending the deadline for the completion of Corporate Insolvency Resolution Process within a time frame of 330 days including the time spent in litigation or judicial process The latest code provides for a time limit of 270 days.[1]

 

  • Faster Resolution of Cases: –

The recent amendment helps free up cases of resolution process that have been stuck for a long period of time for various reasons and focuses on timely admission of applications as well.

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  • Extended Powers to COC and Distribution of Claims: –

The amendment extends the power of the Committee of Creditors by allowing them to decide how claims will be distributed on the basis of commercial consideration. The code will provide some flexibility in deciding the sharing pattern among stakeholders as long as the mandatory provisions are duly complied with.

 

As per the code, Financial creditors have a priority over operational creditors in case of distribution under a resolution plan. As of now, there is no clarity on distribution to creditors other than the financial and operational creditors.

 

Proposed amendment of IBC (Insolvency and Bankruptcy Code) will make it clear that creditors must be entitled to receive at least as much of the proceeds of a successful resolution plan as they would if the proceeds were distributed according to the priority of payments during the liquidation of a company.[2]

 

  • Voting by Trustees
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The amendment aims to provide for the voting rights to the trustees who are appointed as representatives by financial creditors.

Also, votes of trustees will be casted according to the highest voting share of financial creditors. “If a trustee has an approval of 50% or more of the debenture holders by value, he can vote at a CoC meeting on the basis of instructions given by the debenture holders.”[3]

 

  • Liquidation: –

The CoC may decide to liquidate a corporate debtor any time after the constitution of CoC and before the preparation of information memorandum.[4]

 

  • Resolution is Binding: –

One of the key amendment is that the bankruptcy resolution or liquidation under IBC is binding on all stakeholders including central, state and local governments, in order to prevent the state authorities such as income tax officials from questioning a rescue plan adopted in a court-monitored process.[5]

 

  • Boost to Homebuyers: –
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Since a long period of time, homebuyers have filed cases against the builders for non-delivery of flats. Proposed amendment will ensure that majority of votes from creditors such as home buyers will be counted as a 100% vote of creditors in favor of or against a resolution plan.

 

For example, if out of 100 home buyers, half or more of them vote to back a resolution plan, then all of them would be considered to have voted for it.

 

 

[1] https://ibbi.gov.in/uploads/whatsnew/press_release_of_IBC_Code-1.pdf

[2]https://economictimes.indiatimes.com/news/economy/policy/government-approves-7-amendments-to-insolvency-law/articleshow/70260805.cms

[3]https://www.bloombergquint.com/law-and-policy/ibc-amendment-bill-cabinet-approves-changes-to-insolvency-code-to-give-coc-more-powers-extend-deadline

[4] https://ibbi.gov.in/uploads/whatsnew/press_release_of_IBC_Code-1.pdf

[5] https://www.livemint.com/

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