prpri Insolvency and Bankruptcy Code (Amendment) Act, 2019: An Analysis Insolvency and Bankruptcy Code (Amendment) Act, 2019: An Analysis

The Insolvency and Bankruptcy Code (Amendment) Bill, 2019 was introduced in Rajya Sabha by the Minister of Finance, Ms. Nirmala Sitharaman, on July 24, 2019. The Bill amends the Insolvency and Bankruptcy Code, 2016. The Lok Sabha on August 01, 2019 passed the Insolvency and Bankruptcy Code (Amendment) Bill 2019 and the bill received the Presidential Assent on 5th August 2019. The bill came into effect on 16th August 2019 by a notification in the official Gazette by the Central Government. The following act provides for the following amendments to the main act:-

S. No Section Particulars Pre Amendment Post Amendment Impact
1. 5(26) Resolution plan No explanation to S.5(26) The explanation envisages that Resolution Plan may include provisions for Restructuring of Corporate debtors, including by way of merger, amalgamation & De-Merger. With the amendment, the scope of resolution plan is expanded by inserting the provision of restructuring through mergers, demergers and amalgamation.
2. 7(4) proviso Initiation of corporate insolvency Resolution process by financial creditor. No proviso to S. 7(4) The amendment, by way of insertion of proviso, requires that if the Adjudicating Authority has not ascertained the existence of default and passed an order under sub-section (5) within such time, it shall record its reasons in writing for the same. With the amendment, focus has been shifted for the timely disposal of cases filed by financial creditors.
3. 12(3) Time-limit for completion of insolvency resolution Process. No mention of the added proviso By way of amendment, two new provisos are added to S.12(3) i.e.-

  • It requires the completion of the corporate insolvency resolution process within a maximum of 330 days. It includes any extension granted under section 12 and the time taken in legal proceedings in the resolution process.
  • Provided further that where the resolution process of Corporate Debtor is pending in above proviso(2nd Proviso), it shall be completed in 90 days of Commencement of IBC (Amendment) Act,2019.
With the amendment, the process of CIRP has been brought within the strict time framework of 330 days.
4. 25A Rights and duties of authorised representative of financial creditors No mention of sub-section 3A With the amendment a new sub section 3A is inserted. According to the amendment, an authorized representative representing financial creditors under section 21(6A) “shall cast his vote on behalf of all the financial creditors he represents in accordance with the decision taken by a vote of more than fifty per cent of the voting share of the financial creditors he represents, who have cast their vote”. Pursuant to the amendment, the decisions of the majority members of a class of creditors will be considered as the decision of the entire class which will result in smoothening the process of decision making.
5. 30(2)(b) Submission of Resolution plan. · The earlier provision provided that repayment of debts to operational creditors should be paid in a manner provided by the Board and the said amount should not be less than the amount that would have been paid to the operational creditors in case of liquidation of corporate debtor under section 53 of the act.

· The committee of creditors may approve a resolution plan by a vote of not less than sixty-six per cent, of voting share of the financial creditors, after considering its feasibility and viability.

· After the amendment The Bill provides that the amounts to be paid to the operational creditor should be the higher of:

(i) Amounts receivable under liquidation, and (ii) the amount receivable under a resolution plan, if such amounts were distributed under the order of priority provided under S.53(1).

  • Further, the Bill states that this provision would also apply to insolvency processes: (i) that have not been approved or rejected by the adjudicating authority, (ii) that have been appealed to the National Company Appellate Tribunal (S.61) or Supreme Court (S.63), and (iii) where legal proceedings have been initiated in any court against the decision of the adjudicating authority.
  • After the amendment, the following words are added after “feasibility and viability” i.e. the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor.
  • With the amendment the amount paid to the operational creditors have been changed to include the higher amount of either liquidation or of a resolution plan.
  • Further, the scope of the section has also been increased to include cases of insolvency.
  • With the amendment, focus was shifted on the manner of distribution to the creditors. So, now after the amendment the committee of creditors while approving a plan of resolution will take into consideration the manner of distribution to creditors provided under S. 53(1).
6. 31(1) Approval of

Resolution plan.

No mention With the amendment words “Including Central Government, any State Government or any local Authority to whom a debt in respect of payment of dues arising under any law for time being in force , such as authorities to whom statutory dues are owed” are inserted after words ‘members, creditors’ in S.31(1). With the amendment, the resolution plans are now binding on all stakeholders including central government, state government or any local authority.
7. 33(2) Initiation of liquidation. No mention of explanation. With the amendment an explanation is added after S.33(2) which states that the committee of creditors can take the decision to liquidate the corporate debtor any time after its constitution under S.21(1) and before the confirmation of resolution plan. With the amendment it has been made clear, that the ultimate decision to liquidate the corporate debtor lies with the Committee of Creditors and they can do it any time after their constitution and before the confirmation of resolution plan.
8. 240(2)(w) Power to make regulations The provision was only dealing with repayment of debts of operational creditors. With the amendment words “repayment of debts of operational creditors” shall be substituted by “payment of debts”. With the amendment, the scope of payment of debts has been increased with respect to its earlier position when it was paid only to operational creditors.

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