Both the houses of the Parliament have passed the Insolvency and Bankruptcy Code (Amendment) Bill 2017 and the bill is waiting for assent of the President of India to become a law. The aim of this amendment was to tightening loopholes in existing code and disallows backdoor entry of some existing managements from bidding as resolution applicants and gaining control after securing huge haircuts.
The highlights of the amendment are as under.
Eligibility for resolution applicants:
Section 25(h) [Duties of Resolution Professional) provides that resolution professional will invite only those applicants to submit a resolution plan who meet the criteria decided by him along with the creditors committee or by the Insolvency and Bankruptcy Board of India. In the earlier code resolution applicant is defined as a person who could submit a plan to the insolvency professional.
Ineligibility to be resolution applicant:
Section 29(a) The IBC (amendment) Bill 2017 prohibits certain persons from submitting a resolution plan in case of defaults. The list of persons barred from submitting such plans, which were: (i) an undischarged insolvent, (ii) a wilful defaulter, (iii) account has been identified as a non-performing asset for more than a year. (iv} Person who has been convicted of an offence punishable with two or more years of imprisonment, (v) has been disqualified as a director under the Companies Act, 2013, (vi) person who has been prohibited from trading in securities by SEBI, (vii)Person who has indulged in undervalued, preferential, or fraudulent transactions, (viii) Person who has given guarantee on a liability of the defaulting company undergoing resolution or liquidation, (ix) Person who is connected to any of the above (including promoters, management, or any person related to them or (x) Person who has indulged in these activities abroad.
Section 29 (j) provides exemption to above ineligibility clause in respect of Schedule Banks, Alternate Investment funds (which include PE funds and ARCs).
Further, the Section 29(a)(h) which deals with barring guarantors was amended so as to offer relief to the guarantors who have honoured their guarantee. It is clarified in the bill that the guarantor will only be prohibited from being a resolution applicant in cases where a guarantee was executed by him in favour of creditor and that creditor has filed for insolvency or resolution against the said corporate debtor.
The Bill further clarifies that disqualification of persons from the resolution process will be limited to the period when the ineligibility is in force. The Bill explains the cut-off date of one year fixed for persons who are rendered ineligible due to being holders of NPA accounts. The one year period for NPA account holders will be measured from the date of the classification as NPA to the date of commencement of the corporate insolvency resolution process.
The second provision to section 30(4) of IBC provides that in case of resolution plans submitted before the ordinance came into force, persons who are rendered ineligible due to being holders of NPA accounts for more than one year can become eligible if they pay off all their dues within a thirty days period prescribed by the Committee of Creditors (CoC).
The Ordinance amends to state that the committee will approve this resolution plan by 75% majority subject to any other conditions specified by the Insolvency and Bankruptcy Board. The Ordinance prohibits the committee of creditors from approving a resolution plan submitted before the promulgation of ‘Ordinance’, where the plan has been submitted by a person ineligible to be a resolution applicant.
To know more about approval of resolution plan and other aspects of Bankruptcy law, read