The Ministry of Corporate Affairs (MCA) has, vide its notice dated 18th January 2023, proposed key amendments to the Insolvency and Bankruptcy Code, 2016 (IBC) and sought public comments on such changes. As per the notice, the changes to the IBC are proposed based on earlier public comments that were invited in November-December 2021 regarding corporate insolvency resolution and liquidation frameworks, and the introduction of a cross-border insolvency framework.
A quick bulletized summary of the proposed amendments to the IBC is as follows:
- Use of technology in the IBC ecosystem
- It is proposed that there would be a new state of the art electronic platform available and to be used by various institutions working within the IBC ecosystem, providing for various aspects e.g., case management, automated filing, delivery of notices, storage of records etc.
- Admission of CIRP applications
- Reducing the time taken by AA for determination of default: In order to reduce the time taken by the Adjudicating Authority (AA) for the determination of default, it is proposed that before making an application to initiate the CIRP, the relevant information regarding the occurrence of 'default' or dispute may be ascertained by the Information Utilities (IUs), and for this purpose the information be filed with the IUs in advance. Amendments to section 215 of the IBC are being proposed for this purpose.
- Making it mandatory for the AA to admit the application if default is established: Amendment to section 7 of the IBC is being proposed to clarify the original intent of the law, that is, in case the 'default' is established, the AA has to mandatorily admit the CIRP application. The amendment proposes to overcome the decision of the Supreme Court in Vidarbha Industries Power Limited v Axis Bank Limited (Civil Appeal No. 4633 of 2021), wherein it was held that the AA has the discretion to admit or reject the application despite the occurrence of default. It is also proposed that the time limit of 14 days would apply not only to the determination of default but also to admit or reject the application.
- Restricting the Corporate Debtor from proposing an IRP: Amendment to section 10 of the IBC is being proposed to delete the right of the Corporate Debtor to propose the Interim Resolution Professional (IRP) and replace it with the appointment of the IRP by the AA on the basis of recommendations of the Insolvency and Bankruptcy Board of India (IBBI).
- Decriminalizing the contraventions and replacing with civil penalties: Amendment to section 235A of the IBC (which provides for criminal prosecution) is proposed to replace the criminal punishment with a levy of penalty in case of contraventions of the IBC. Also, the AA is proposed to be empowered to levy penalties in case of frivolous or vexatious applications. Further, it is proposed that the AA would be able to bar promoters who commit repeated contraventions from being a resolution applicant and submitting a resolution plan in any resolution process.
- Streamlining the insolvency resolution process
- It is proposed to redesign the Fast-Track CIRP by including an informal out-of-court process to make it more effective.
- It is proposed to expand and further simplify the scope and reach of the Pre-Packaged Insolvency Resolution framework.
- In order to protect the interests of public and house-allottees in case of real-estate corporate debtors, it is proposed that the CIRP would be considered with respect to specific real-estate projects and not the entire company.
- It is further proposed to allow the approval of multiple resolution plans for the same corporate debtor, and also to be able to separate resolution plans from the distribution of proceeds.
- There are several amendments proposed relating to mandating the use of a challenge mechanism, monitoring the implementation of the plan etc.
- It is proposed that it should be allowed to reinstate the CIRP even while liquidation proceedings are going on (presently, the liquidation proceedings commence after CIRP).
- It is proposed that in cases where the assets of the corporate debtor and its guarantors are closely or inseparably linked, the assets of the guarantors should also be included in the general pool of assets available for CIRP. Similar amendments are being proposed in case of inter-linkages between different companies of the same group.
- In order to improve the position of the operational creditors, it is proposed that all unsecured creditors shall be brought at par for the purpose of distribution of assets. Further, it is sought to be clarified that all debts owed to the Central or State Governments shall be treated at par with unsecured creditors.
- Presently, the information memorandum shared with the resolution applicants does not contain a valuation estimate of the assets of the corporate debtors. Amendment is proposed to section 29 of the IBC to provide for it.
- Pursuant to the 'clean-slate' principle, suitable amendment is being proposed to clarify that no civil liabilities shall be passed on to the resolution application, and the government shall not initiate any proceedings against it.
- Further, there are certain amendments in regard to the computation of voting share, to incentivize interim finance providers, appointment of administrator, and individual insolvencies.
- Recasting the liquidation process
- It is proposed to enable the Committee of Creditors (CoC) to request the AA to dissolve the corporate debtor directly (without going through liquidation) if the liquidation process would not be feasible.
- It is also proposed to eliminate the duplication of efforts and processes between CIRP and liquidation. Sections 38 to 42 and 35(1)(j) are sought to be deleted.
- Further, the CoC is sought to be empowered to supervise and support the liquidator's functioning, and also to be able to prevent the Resolution Professional (RP) from becoming the liquidator with adequate voting.
- Amendment of section 33(5) is sought in order to stay any suit or legal proceedings during the liquidation process.
- Amendment is also sought to restrict any secured creditor's right to realize the security interest or to relinquish it within a stipulated period.
- Role of service providers and other stakeholders
- Amendments are proposed to improve the regulation of service providers. For this, (i) IBBI may be empowered to register and regulate a special class of valuers for rendering all valuation-related services during the processes envisaged under the Code, and (ii) section 219 of the Code may be amended to enable IBBI to issue an SCN without inspection or investigation if sufficient material is available on record.
The public comments on the above amendments are to be submitted latest by 7th February 2023 and may be submitted at: https://ibbi.gov.in/webfront/discussion_paper/invitation_public/
Originally published Jan 19 2023.
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