Parliament passes amendments to IBC
Parliament on 12 March 2020 passed amendments to the insolvency law that will help ring-fence successful bidders of insolvent companies from risk of criminal proceedings for offences committed by previous promoters. The Insolvency and Bankruptcy Code (Amendment) Bill, 2020 was passed by voice vote in Rajya Sabha. It was approved by the Lok Sabha on March 6. The Bill replaces an ordinance.
- Finance Minister Nirmala Sitharaman said amendments are sync with time and also adhere to a Supreme Court order in “letter and spirit”
- The Minister said need for amendment in the IBC arose because of “changing requirement” and “requirement of fine tuning” the law as several MPs wanted to know why the government was bringing in so many amendments to a new law.
- Stressing that the government is “very responsive” and has been talking to the industry, she assured the House that amendments to the IBC are are not being “unthinkingly done.” The IBC, which came into force in 2016, has already been amended thrice.
- Ms. Sitharaman said the government was taking care of the interest of home buyers and the requirement of minimum number of home buyers in the IBC has been included to avoid “frivolous litigations.”
- The Bill seeks to remove bottlenecks and streamline the corporate insolvency resolution process. It aims to provide protection to new owners of a loan defaulter company against prosecution for misdeeds of previous owners.
- The latest changes pertain to various sections of the IBC as well as introduction of a new section.
- Among other things, the Bill seeks to ensure timely admission of insolvency cases and completion within the newly set deadline of 330 days (it was 270 days earlier).
- The resolution plan under the corporate insolvency resolution process will also be binding on the Centre, State and local authorities.
- As for the large pendency before the NCLT, Sitharaman highlighted that as much as 73 per cent of the cases waiting for resolution are actually from the BIFR stable and these are not a result of the last few years.
- She highlighted that the government has been taking steps to increase the capacity of National Company Law Tribunal (NCLT) and increased its benches from 10 to 15. Also 26 new members have been added taking the total strength to 52.
Focus on revival
- Sitharaman also made it clear that the IBC was not looking to force companies into liquidation, but focused on their revival and continuing as going concerns.
- “Not allowing companies to die is the spirit behind IBC. If there is any prospect of company getting revived, the solution is not to go to liquidation. but ensure it is going concern.
- It is not the intent here that every problematic issue related to companies are taken only with liquidation as an agenda. IBC doesn’t keep only liquidation as an agenda.
- The government does not play a role on haircuts — the extent of write off that banks undertake as part of resolution plan to get the company back on track.
- It is Committee of creditors that decided the haircuts. So far financial creditors have got 43 per cent of their claims and 188 percent of the liquidation value, she said.