The Union Cabinet on December 11, 20191 approved the amendment to the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as 'IBC') and the same was introduced in the Lok Sabha on December 12, 2019. The amendment aims at streamlining issues of troubled companies, protect corporate debtors and prevent unnecessary revocation of insolvency proceedings under the IBC.
The amendment also intends to provide protection to a corporation from criminal proceedings against offences committed by previous management or promoters. Additionally, it also provides a faster revival process for stressed companies.
Key Highlights of the Bill –
- Proviso to Clause (12) of Section 5 of the Code has been omitted to clarify that the insolvency commencement date is the date on which an application for initiating Corporate Insolvency Resolution Process (hereinafter referred to as 'CIRP') is admitted.
- Section 7 of the Code has been amended to clarify minimum threshold for certain classes of financial creditors for initiating CIRP. It states that an application for initiating CIRP shall be filed jointly by not less than 100 of such creditors in the same class or not less than 10% of the total number of such creditors in the same class, whichever is less. For financial creditors who are allottees under a real-estate project, an application for initiating CIRP shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than 10% of the total number of such allottees under the same real estate project, whichever is less.
- Section 11 of the Code has been amended to clarify that a corporate debtor shall not be prevented from initiating CIRP against any other corporate debtor.
- Section 14 of the Code has been amended to put a stay on the licenses, permits, concessions, clearances etc. of the corporation. The above cannot be terminated, suspended or not renewed on the grounds of insolvency during the moratorium period. Additionally, the supply of goods and services critical to preserve and protect the value of the corporate debtor, such supply shall not be terminated.
- Section 16 of the Code has been amended to provide that an insolvency resolution professional should be appointed on the date of admission of the application for initiation of CIRP.
- Section 23 of the Code has been amended to enable the resolution professional to manage the affairs of the corporate debtor during interim period between the expiry of CIRP till the appointment of a liquidator;
- A new Section 23A has been inserted to provide that the liability of a corporate debtor for an offence committed prior to the commencement of the CIRP shall cease under certain circumstances.
Effects of the amendment
The amendment brings the much awaited changes needed in the insolvency sector. It clears the air on various aspects and provides relief to both corporate debtor as well as the creditors. The thresholds introduce will prevent admission of unnecessary cases to the insolvency court. However, even after anticipation, cross border insolvency framework has not been included in the amendment. Now, the same is expected to get cleared in the next session.
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