With the introduction of The Insolvency and Bankruptcy Code (Amendment) Bill, 2019, on 24 July 2019 in the Rajya Sabha, the government has sought to amend the Insolvency & Bankruptcy Code, 2016. Earlier, the Insolvency and Bankruptcy Board of India (IBBI), through a notification dated 23 July 2019, has amended certain IBBI regulations. This article aims to discuss and analyze the recent proposed amendments to the code and the amendments by the IBBI to regulations regarding insolvency professionals (IP), insolvency professional agencies (IPA) and model bye-laws and governing boards of IPAs.
Extension of resolution period
The time period for the resolution process of a corporate debtor, which is currently 270 days, would be extended to 330 days. Any extension granted for the completion of the resolution process or the time taken in legal proceedings would be factored in counting of such 330 days. However, if the process is not completed within 330 days, an order requiring the corporate debtor to be liquidated under section 33(1)(a) will be made. The proposed amendment further provides that the National Company Law Tribunal must explain in writing the reasons for the delays if an application has not been admitted or rejected within 14 days.
It also proposes that if the corporate insolvency resolution process (CIRP) is pending and not completed within 330 days, the resolution should be completed within an additional 90 days from the date of the commencement of the bill.
The code contemplates appointment of an authorized representative to vote on behalf of homebuyers in the meeting of the Committee of Creditors (COC). The amendment proposes that if more than 50% of the homebuyers (present and voting) approve the resolution plan, the plan would stand as approved.
Manner of distribution of amounts
The bill seeks to guarantee operational creditors the amount that would have been available to them through the waterfall mechanism or in the event of liquidation (whichever is higher). Financial creditors that have not voted in favour of a resolution plan would be entitled to receive an amount not less than the liquidation value of their debt. The bill also proposes to give the amendments retrospective effect.
Extended powers to COC
The COC has been given the authority to liquidate a corporate debtor any time after its constitution and before the confirmation of the resolution plan. This also includes any time before the preparation of the information memorandum, which is to be prepared under section 29(1) of the code. It is further proposed that the resolution plan shall be binding on the state and central governments as well as local authorities to whom dues may be owed by the corporate debtor.
Widening scope of resolution plan
The bill proposes that a resolution plan may include provisions for restructuring of the corporate debtor, which may include mergers, amalgamations and demergers.
Amendment to IBBI regulations
Key amendments in the IBBI (Insolvency Professionals) Regulations, 2016, include the requirement of taking an authorization for assignment by an IP before undertaking any assignment from the relevant IPA. This would be effective from 1 January 2020. The assignment includes working as an interim resolution professional, resolution professional, liquidator, bankruptcy trustee, authorized representative or in any other role under the code. The IPA has to inform of any change in the status of authorization to IBBI within a day of the change. Importantly, IPs have been restricted from engaging in any employment. It will enable a registered IP to start and quit practice as and when they wish depending on their specific requirements.
An IP is now mandated to disclose details of any conflict of interest to stakeholders whenever such a situation arises. Also, where an IP has conducted a corporate insolvency resolution process, the IP or their relatives cannot accept any employment with the corporate debtor, other than through an open competitive recruitment process.
The introduction of the IBC in 2016 was intended to bring a time-bound resolution of stressed assets. However, timelines were being met as an exception rather than as a rule. The government, through these amendments, seeks to bring in certainty of timelines by factoring in the time taken for litigation. Notably, however, the bill has allowed the adjudicating authority to furnish reasons, if there is a delay in the initial period of 14 days in starting the insolvency resolution process.
Abhishek Dutta is the founder and managing partner of Aureus Law Partners. Vineet Shrivastava is a partner and Aayushi Agarwal is an associate at the firm.
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