Lok Sabha passes Insolvency & Bankruptcy Code Amendment Bill, 2017

The Lok Sabha has passed the Insolvency and Bankruptcy Code (Amendment) Bill 2017 to pave the way for tightening loopholes in existing code and to make resolution process more effective.
The Bill amends the Insolvency and Bankruptcy Code (IBC), 2016, and replaces an Ordinance promulgated in November 2017.

Background

The IBC was enacted in 2016 to find a time-bound resolution for ailing and sick firms, either through closure or revival, while protecting interests of creditors. Successful completion of resolution process is expected to aid in reducing rising bad loans (NPA-non Performing assets) in the banking system.

Key Features of Bill

Resolution applicant: The bill redefines resolution applicant mentioned in code as a person who submits a resolution plan after receiving an invite by the insolvency professional to do so.
Eligibility for resolution applicants: It amends provision related to eligibility in IBC to state that insolvency professional will only invite those resolution applicants to submit a plan, who fulfil certain criteria laid down by him with approval of committee of creditors and other conditions which may be specified by Insolvency and Bankruptcy Board.
Ineligibility to be a resolution applicant: It prohibits certain persons from submitting resolution plan in case of defaults. These include: (i) wilful defaulters, (ii) promoters or management of the company if it has outstanding non-performing debt for over year and (iii) disqualified directors, among others.
Liquidation: The bill bars the sale of property of a defaulter to such persons who is ineligible to be a resolution applicant during liquidation.
Penalties: The Bill inserts provision to specify that person contravening any provisions of IBC, for which no penalty has been specified, will be punishable with fine ranging between Rs. 1 lakh to Rs. 2 crore.

Comment

The bill has diluted some of stringent provisions of ordinance. It seeks to strike balance in trade-off between punishing wilful defaulters and ensuring a more effective insolvency process. The bill allows defaulting promoters to be part of the debt resolution process, provided they repay dues in month to make their loan account operational and resolution happens within overall time frame specified in the code.
This amendment will help promoters who had submitted resolution plans before ordinance barred them from taking part in the resolution process of companies. It also allows asset reconstruction companies (ARCs), alternative investment funds (AIFs) such as private equity funds and banks to participate in bidding process.

Month: Current Affairs - December, 2017