Insolvency and Bankruptcy Code 2016: Check out gist of the amendments

New Delhi: A day after the Union Cabinet approved an ordinance to introduce certain changes to the Insolvency and Bankruptcy Code (IBC), President Ram Nath Kovind on Thursday gave his assent on it.

The IBC, being implemented by the Corporate Affairs Ministry, became operational in December 2016 and provides for a time-bound insolvency resolution process.

The changes proposed are expected to help streamline the process of selecting buyers for stressed assets. For instance, currently the Code does not specify the type of buyers who can bid for stressed assets of companies that are undergoing bankruptcy proceedings.

The government announced earlier this month that insolvent corporates seeking a resolution plan under the new law will now be subject to more stringent tests regarding creditworthiness and credibility by the Insolvency and Bankruptcy Board of India (IBBI).

The revised regulations make it obligatory to provide information about the corporate applicant, including details of antecedents "in terms of convictions, disqualifications, criminal proceedings, categorisation as wilful defaulter as per RBI guidelines, debarment imposed by (markets regulator) SEBI, if any, and transaction, if any, with the corporate debtor in the last two years".

The Ordinance amends sections 2, 5, 25, 30, 35 and 240 of the Code, and inserts new sections 29A and 235A in the Code.

Gist of the amendments is given below:

(i) Clause (e) of section 2 of the Code has been substituted with three clauses. This would facilitate the commencement of Part III of the Code relating to individuals and partnership firms in phases.

(ii) Clause (25) and (26) of section 5 of the Code which define “resolution applicant” and “resolution applicant” are amended to provide clarity.

(iii) Section 25(2)(h) of the Code is amended to enable the resolution professional, with the approval of the committee of creditors (CoC), to specify eligibility conditions while inviting resolution plans from prospective resolution applicants keeping in view the scale and complexity of operations of business of the corporate debtor to avoid frivolous applicants.

(iv) Section 29A is a new section that makes certain persons ineligible to be a resolution applicant. Those being made ineligible inter alia include

· willful defaulters,

·  those who have their accounts classified as non-performing assets for one year or more and are unable to settle their overdue amounts include interest thereon and charges relating to the account before submission of the resolution plan,

· those who have executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor undergoing a corporate insolvency resolution process or liquidation process under the Code

· and connected persons to the above, such as those who are promoters or in management of control of the resolution applicant, or will be promoters or in management of control of corporate debtor during the implementation of the resolution plan, the holding company, subsidiary company, associate company or related party of the above referred persons.

(v) It has also been specifically provided that CoC shall reject a resolution plan, which is submitted before the commencement of the Ordinance but is yet to be approved, and where the resolution applicant is not eligible as per the new section 29A. In such cases, on account of the rejection, where there is no other plan available with the CoC, it may invite fresh resolution plans.
 
(vi) Section 30(4) is amended to explicitly obligate the CoC to consider feasibility and viability of the resolution plan in addition to such conditions as may be specified by IBBI, before according its approval.

(vii) The sale of property to a person who is ineligible to be a resolution applicant under section 29A has been barred through the amendment in section 35(1)(f).

(viii) In order to ensure that the provisions of the Code and the rules and regulations prescribed thereunder are enforced effectively, the new section 235A provides for punishment for contravention of the provisions where no specific penalty or punishment is provided. The punishment is fine which shall not be less than one lakh rupees but which may extend to two crore rupees.

(ix) Consequential amendments in section 240 of the Code, which provides for power to make regulations by IBBI, have been made for regulating making powers under section 25(2)(h) and 30(4).