President Mr.Ram Nath Kovind on Wednesday (June 6, 2018) gave assent to promulgate the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018. The Government in its statement said that the changes envisioned in the amendment are expected to further strengthen the Insolvency Resolution Framework in the country and produce better outcomes in terms of resolution as opposed to liquidation, the time is taken, the cost incurred and recovery rate.
Salient features of IBC (amendment) ordinance 2018
- The amendment enables home buyers to invoke section 7 of the Insolvency and Bankruptcy Code (IBC), 2016 against delinquent realtors, by recognising their status as financial creditors. The tag of financial creditors will allow buyers of apartments in Jaypee Infratech and Amrapali projects to have a say during the resolution process.
- The Ordinance also provides for a mechanism of due representation for participation of security holders deposit holders and other financial creditors as integral part of decision making process.
- The Government provides special dispensation to MSME sector under the above ordinance. The promoters of MSMEs are now allowed to bid for their companies under corporate insolvency resolution process (CIRP) provided they are not the wilful defaulter and do not attract other disqualifications not related to default.
- Withdrawal of insolvency action after admission possible only with the approval of the Committee of Creditors with 90 percent of the voting share. Such withdrawal will only be allowed before publication of notice inviting Expressions of Interest (EoI). It means, there can be no withdrawal once the commercial process of EoIs and bids commences.
- The voting threshold has been brought down to 66 percent from 75 percent for all major decisions such as approval of resolution plan, extension of CIRP period, etc. This is with a view to encouraging resolution as opposed to liquidation.
- In order to facilitate the corporate debtor to continue as a going concern during the CIRP, the voting threshold for routine decisions has been reduced to 51 percent.
- The Ordinance provides for a minimum one-year grace period for the successful resolution applicant to fulfill various statutory obligations required under different laws.
- The Ordinance include non-applicability of moratorium period to enforcement of guarantee; introducing the requirement of special resolution for corporate debtors to themselves trigger insolvency resolution under the Code; liberalizing terms and conditions of interim finance to facilitate financing of corporate debtor during CIRP period; and giving the IBBI a specific development role along with powers to levy fee in respect of services rendered.
- Section 29(a) The IBC (amendment) Bill 2017 prohibits certain persons from submitting a resolution plan in case of defaults. The above section is fine- tuned to exempt pure play financial entities from being disqualified on account of NPA. Likewise, a resolution application holding an NPA by virtue of acquiring it in the past under the IBC, 2016, has been provided with a three-year cooling-off period, from the date of such acquisition. However, the resolution applicant shall submit an affidavit certifying its eligibility to bid. This places the primary onus on the resolution applicant to certify its eligibility.