The Insolvency and Bankruptcy Code of 2016 suffered from concerns related to undue delays caused due to extensive litigation which may hamper the maximisation of value of the assets. The legislators have found a need to ensure that all creditors are treated fairly, without unduly burdening the Adjudicating Authority whose role is to ensure that the resolution plan complies with the provisions of the Code. The Insolvency and Bankruptcy Code (Amendment) Bill, 2019 has been introduced in the Rajya Sabha by Minister of Finance, Ms. Nirmala Sitharaman, on July 24, 2019 and it seeks to fill in the critical gaps in the corporate insolvency framework by amending certain provisions of the Code. The Bill broadly addresses the issues related to time limits, minimum pay-outs to operational creditors in any resolution plan and voting by the representative of a group of financial creditors.
Section 5(26) of the Code has been amended to expand the definition of “resolution plan” to clarify that a resolution plan proposing the insolvency resolution of corporate debtor as a going concern may include the provisions for corporate restructuring, including by way of merger, amalgamation and demerger to enable the market to come up with dynamic resolution plans in the interest of value maximisation.
Section 7 (4) of the Code has been amended to give an onus to the Adjudicating Authority i.e. NCLT to provide a reason in writing if an application has not been admitted or rejected within fourteen days by the NCLT.
Section 12(3) of the Code has been amended to mandate that the insolvency resolution process of a corporate debtor shall not extend beyond three hundred and thirty days from the insolvency commencement date, which will include the time taken in legal proceedings, in order to prevent undue delays in the completion of the Corporate Insolvency Resolution Process. However, if the process, including time taken in legal proceedings, is not completed within the said period of three hundred and thirty days, an order requiring the corporate debtor to be liquidated under clause (a) of sub-section (1) of section 33 shall be passed. It is also clarified that the time taken for the completion of the corporate insolvency resolution process shall include the time taken in legal proceedings. Section 25A has amended to include a subsection 3A to provide that an authorised representative under sub-section (6A) of section 21 will cast the vote for all financial creditors he represents in accordance with the decision taken by a vote of more than fifty per cent of the voting share of the financial creditors he represents, who have cast their vote, in order to facilitate decision making in the committee of creditors, especially when financial creditors are large and heterogeneous group.
Section 30 (2) of the Code has been amended to provide that– (i) the operational creditors shall receive an amount that is not less than the liquidation value of their debt or the amount that would have been received if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priorities in section 53 of the Code, whichever is higher; (ii) the financial creditors who do not vote in favour of the resolution plan shall receive an amount that is not less than the liquidation value of their debt; (iii) the provisions shall apply to the corporate insolvency resolution process of a corporate debtor– (A) where a resolution plan has not been approved or rejected by the Adjudicating Authority; or (B) an appeal is preferred under section 61 or 62 or such appeal is not time barred under any provision of law for the time being in force; or (C) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan. Sub-section (1) of section 31 of the Code has been amended to clarify that the resolution plan approved by the Adjudicating Authority shall also be binding on the Central Government, any State Government or any local authority to whom a debt in respect of payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, including tax authorities. Section 33(2) of the Code has been amended to clarify that the committee of creditors may take the decision to liquidate the corporate debtor, in accordance with the requirements provided in sub-section (2) of section 33, any time after the constitution of the committee of creditors under sub-section (1) of section 21 until the confirmation of the resolution plan, including at any time before the preparation of the information memorandum. Section 240 (2)(w) the words “repayment of debts of operational creditors” will be substituted with the words “payment of debts”.
The Bill is pending approval by the Rajya Sabha.