Changes in Insolvency and Bankruptcy Code for easier resolutions

The Rajya Sabha on 29^th July ,2019 approved the amendments to the three year old Insolvency and Bankruptcy Code. These amendments are aimed at filling critical gaps in the Corporate Insolvency Resolution Framework while at the same time maximizing value from resolution.

These changes are brought in response to the events that eroded the legislative intent of the IBC

Salient features of Amendments include

• Restricting the resolution process to 330 days including time for litigation and other judicial proceedings. Currently the time line of 270 days has been extended in a number of cases with lawyers seeking to exclude the time taken for litigation. Litigation in NCLAT or Supreme Court should not extend beyond 60 days.
• Ensuring the primacy of financial creditors over operational creditors in case of recovery.
• Homebuyers have been given stringer voice in resolution plans of developers that have not delivered projects –With the new provision that seeks to change the voting pattern to “present and voting “and allows for almost all resolutions to go through if they are backed by over 50 % votes.However this would run the risk of monopolising control of process with one or two financial creditors in the CoC            (Committee of Creditors).
• Currently several decisions were held up as 66 % votes were required for a resolution to be passed.
• Committee of Creditors to decide on distribution – Operational Creditors and Unsecured Financial Creditors need not be treated at par with Secured Financial Creditors.          
• Faster Resolution Plans –Bill proposes to provide more flexibility by allowing Corporate Restructuring Schemes as a part of resolution plan. Resolution plan would be binding on all stakeholders including Centre, State Governments and local Authority to which dues may be owed.
• Recovery of dues of operational creditors and Financial Creditors (in case of negative voting) is proposed to be amended. Minimum recovery assurance is provided.
• NCLT to record reasons before rejecting application for CIRP.
• COC can resolve to Liquidate the Company, before Information Memorandum is prepared. Earlier, COC had right to Liquidate Company before Resolution Plan was confirmed.

These are most welcomed amendments and re-emphasize the significance of timely resolution of cases with greater certainty.