IBC Amendment Bill 2019
Major update on IBC Amendment Bill 2019, on 4th July 2019, the National Company Law Appellate Tribunal (“NCLAT”) pronounced a judgement in the Essar Steel case[1], which provides for parity between financial creditors and operational creditors in the resolution plan. The judgement has received discontentment and concerns amongst leading market creditors from approaching the Insolvency and Bankruptcy Code, 2016 (“Code”) route in the future.
While creditors are gearing up to challenge NCLAT’s
ruling in the Supreme Court, the Union Cabinet on 17th July, 2019,
approved the proposal of introducing the Insolvency and Bankruptcy Code
(Amendment ) Bill, 2019 (“Amendment Bill”) for amending certain provisions of the
Code. The Amendment Bill aims to resolve and clarify present ambiguities and
difficulties under the Code by making it more efficient and creditor friendly.
Salient features of the proposed IBC Amendment Bill 2019 are as follows:[2]
- Introduction of alternative schemes
The proposed Amendment Bill aims
to amend the Code to include alternative restructuring schemes such as mergers,
demergers and amalgamations as part of the resolution plan.
- Extended Deadline
The Amendment Bill aims to amend
the Code by extending the deadline taken for completion of corporate insolvency
resolution process from 270 days to 330 days but this period of 330 days shall also
include the time spent in litigation or any other judicial process after a
resolution plan is admitted under the Code. This amendment shall make the
resolution process more efficient and economically viable for the creditors.
- Voting by Lenders’ Trustees/ Agents
The Amendment Bill intends to
restructure voting by trustees/ agents appointed as representatives by
financial creditors of the same class under section 21 (6A) of the Code. Such
trustees/ agents of financial creditors of the same class shall cast vote in
accordance with the decision approved by the highest voting share (more than 50
%) of financial creditors on present and voting basis. The idea is to make
decision-making easier even if a large number of them do not take part in
voting.
- Distribution of Claims
The Amendment Bill intends to
provide a specific provision for financial creditors who have not voted in
favour of the resolution plan and operational creditors for receiving at least
the amount that would have been received by them if the amount to be
distributed under the resolution plan had been distributed in accordance with Section
30 read with Section 53 of the Code or the amount that would have been receive
if the liquidation value of the corporate debtor had been distributed in
accordance with Section 53 of the Code, whichever is higher. This will have
retrospective effective where the resolution plan has not attained finality or
has been appealed against.
Further, the Amendment Bill
intends to reiterate the position of creditors in a resolution process under
Section 53 of the code by giving a secured creditor higher priority over the
unsecured and other operational creditors.
- Grant of Power to Committee of Creditor
The Amendment Bill intends to
grant powers to the Committee of Creditors by permitting it to decide how
claims will be dispersed on the basis of commercial consideration.
- Resolution Plan shall be Binding on all Entities
The Amendment Bill aims to clarify
that the resolution plan shall be binding on all stakeholders, including the
Central Government, any State Government or local authority who have claims
against a corporate debtor.
- Liquidation
The Amendment Bill intends to
provide that a Committee of Creditors may take the decision to liquidate the
corporate debtor, at any time after the constitution of Committee of Creditors
and before the preparation of Information Memorandum (a document prepared by a
resolution professional with details and information about the formulation of a
resolution plan).
The Central Government by introducing this Amendment Bill intends to speed up the bankruptcy resolution process which has been delayed in various ongoing cases due to the involvement of courts and rectification of irregularities, thereby affecting the efficiency and intention of the Code since the law came into force in 2016. Also, this Amendment Bill after getting the approval of the Union Cabinet will resolve the concerns all secured creditors who were worried after the interpretation of the Code by NCLAT in the Essar Steel case.
Contributed By – Divyadeep Manu
Designation – Associate
[1] Company
Appeal (AT) (Ins.) No. 242 of 2019, dated 4th July, 2019.
[2] http://www.pib.gov.in/indexd.aspx
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