Synopsis of Proposed Sweeping Changes for Public Comments in IBC 2016 as per MCA notification dated 18.01.2023
The Ministry of Corporate Affairs (MCA) has proposed sweeping changes to the Insolvency and Bankruptcy Code with the broader objective of bringing more transparency in the whole process, Use of technology, increasing the role of Information Utilities, giving more powers to Central Govt, AA & IBBI, making Fast track mechanism more effective etc., for a specified size company by a Notification dated 18.01.2023 and also asked Public for submission of comments against it latest by 5.30 PM dated 07.02.2023 in online mode https://ibbi.gov.in/webfront/discussion_paper/invitation_public/. The synopsis of these purposed changes in IBC 2016 for Public Comments are as follows: –
1) Redesigning fast-track CIR Process: The proposed changes include redesigning the fast-track corporate insolvency resolution process to permit financial creditors to drive the insolvency resolution process for a corporate debtor outside of the judicial process, the government said. This will be done while retaining some involvement of the adjudicating authority to improve the legal certainty of the final outcome, the Government said. “Insolvency resolution through this procedure will be available for corporate debtors with such asset size as notified by the Central Government,”.
2) Improving outcomes in Real Estate Cases: The government considers a change in IBC law to initiate the bankruptcy process Project wise only. This will serve a dual purpose. First, the stressed projects, which caused the corporate debtors’ insolvency, can be resolved separately and the debtor can continue to focus on other projects where it has not defaulted. Secondly, a suitably tailored resolution can be achieved based on the status of the real estate to enable the transfer of the ownership and possession of a plot, an apartment, or a building to the allottees with the consent of CoCs. This is not allowed currently due to the moratorium under the Code.
3) Equitable scheme of distribution of proceeds: – In a bid to make the process fairer, a new mechanism for an equitable scheme of distribution of proceeds is proposed through which creditors will receive proceeds up to the liquidation value of the company based on the waterfall mechanism. Thereafter, all surplus will then be distributed among creditors based on the ratio of their unsatisfied claims. Any further surplus shall be distributed among shareholders and partners of the company (Sec 53)
4) More Powers to Central Government/Adjudicating Authority/IBBI: – It is being considered to insert an enabling provision in the Code for the Central Government or any other authority as may be prescribed or authorised on this behalf, to propose the appointment of an ‘Administrator’ in specific CIRP cases involving public interest for performing all the duties of an IP, IRP, RP, or liquidator, as the case may be. Further COC shall have no power to remove MCA has observed that several proceedings are maliciously instituted before the AA to delay the conduct of processes. In order to discourage frivolous or vexatious applications, the draft proposal looks to give AAs the power to impose penalties. The minimum penalty, it is proposed, should not be less than Rs 1 lakh per day, which may mount to three times the loss caused or unlawful gain, whichever is higher. Section 29A of the Code may also be amended to allow AAs to bar a promoter who has committed repeated or substantial contraventions from being a resolution applicant. The Code also proposes to boost the power of the Insolvency and Bankruptcy Board of India to issue a show cause notice without inspection or investigation, if sufficient material is available on record. This provision has been brought to overcome recent honourable Supreme Court judgement in the famous case of Vidarbha Industries.
5) Pre-Package relaxed: –The MCA has said that the Code may be amended to provide that the pre-packaged framework shall apply to prescribed categories of corporate debtors in addition to MSMEs. The procedure itself is to be relaxed for faster decision-making by reducing the 66 per cent threshold for unrelated FCs to 51 per cent. The avoidance transaction declaration requirement for the pre-packaged scheme is also proposed to be relaxed.
6) Mingling Assets of CD & Guarantor: – The amendments also address cases in which assets of a company and guarantor often intermingle, by proposing a mechanism to include such assets of the guarantor in the general pool of assets available for the CIRP (corporate insolvency resolution process). A special window may also be created in the corporate insolvency resolution for the sale of secured assets whose possession has been taken by the secured creditor under the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002. This would be done if the guarantor’s and corporate debtor’s assets are linked.
7) Mandatory to admit Section 7 application where the occurrence of a default is established: While considering an application under Section 7 of IBC for initiation of CIRP by the Financial Creditors (“FC”), Adjudicating Authority (“AA”) is only required to be satisfied about the occurrence of a default and fulfilment of procedural requirements for this specific purpose (and nothing more). Where a default is established, it is mandatory for the AA to admit the application and initiate the CIRP.
8) Approval of multiple resolution plans in respect of the same CD: The Committee of Creditors (“CoC”) may approve that individual or collective asset of the Corporate Debtors (“CD”) may be resolved in one or more resolution plans. However, at least one of the plans ought to provide for insolvency resolution of the CD as a going concern, which may include provisions for its corporate restructuring and other mandatory requirements such as management of affairs of the CD after approval by the AA.
9) Segregation of Resolution Plan from Distribution of Proceeds: –The government has also suggested the Code may be amended to segregate the concept of the resolution plan from the manner of distribution of proceeds received from the successful resolution applicant.
10) E-Platform proposed: – It is proposed to create a state-of-the-art electronic platform to provide for a case management system, automated processes to file applications, delivery of notices, and enabling interaction of insolvency professionals with stakeholders among others. “It may also allow regulators and the AAs to exercise better oversight over their respective domains of functioning through the consolidated information available on the e-platform,”.
11) Transparency in Plan approval: -To mitigate such delays and value destruction, it is also being considered that CoCs may be mandated to transparently look into competing plans through an appropriately designed challenge mechanism.
12) CIRPs of related parties in a consolidated manner:- For CIRPs of related parties (Holding, Subsidiary & Associate), the government wants that the committee of creditors (CoCs) of two or more CDs to be allowed to have common AA and IP. Further they are expected to have cooperation and coordination of their separate processes.
13) Promoter can’t purpose IRP for section 10 application: –The Centre also wants to amend the Code to restrict the right of the promoters — who can also initiate insolvency under Section 10 of the IBC — to propose an interim resolution professional. This is purposed to maintain the independence of IRP to avoid his conflict of interest being CD appointee against his stringent duties under IBC 2016 later on.
14) New Window for SARFAESI: –A special window may also be created in the corporate insolvency resolution for the sale of secured assets whose possession has been taken by the secured creditor under the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002. This would be done if the guarantor’s and corporate debtor’s assets are linked.
15) Protection of a resolution applicant post implementation of the resolution plan concerning civil liabilities: Post approval of the resolution plan, no proceedings may be commenced or be continued by any government or authority regarding the claims arising before the commencement of the CIRP, unless otherwise provided for in the resolution plan, and such claims shall stand extinguished.
16) Direct Dissolution of the CD: CoC can request the AA to dissolve the CD if it believes that conducting the liquidation process in such circumstances may not be feasible or beneficial for the stakeholders. CoC to seek replacement of the RP conducting the CIRP from becoming the liquidator by a vote of at least sixty-six per cent of voting shares.
17) Reinstating CIRP: IBC to enable reinstatement of the CIRP during the liquidation process, where the liquidator continues to carry on the CD’s business, and it is possible to revive the CD as determined by the CoC.
*****
About Author – Manoj Kumar Anand is Delhi based Chartered Accountant (34 years’ experience) and Insolvency Professional (5+ years’ experience) and involved in around 28 assignments as IRP/RP/Liquidator/Process Advisor under IBC 2016. He has Co-authored book on Valuation & Enterprise Management of CD by RP & running IBC-IP Creative YouTube channel. He is also visiting faculty at various seminars held by ICAI, ICSI, CBI, etc, and regularly writing Articles on IBC, and I-Tax. He is Director in Decode Insolvency an IPE & founder President of AIIPA an insolvency professional association, Special Invitee to the Committee on IBC of ICAI, Co-Convener of BVSS-IBC Group & Vice Chairman of Committee on IBC of GIPA.
(Author can be reach at E-Mail:- [email protected] | Phone no: – 9811280787)
Author Bio
