The Ministry of Corporate Affairs is set to propose amendments to the Insolvency and Bankruptcy Code (IBC), based on recommendations made by a parliamentary panel, during the budget session of Parliament, according to a person familiar with folder.
The IBC Amendment Bill, which must first be approved by the Union Cabinet, aims to reduce the time between filing a bankruptcy petition and its admission to court, speed up the approval corporate rescue plans and to maximize the value of assets available for restructuring. Parliament’s budget session, currently on hiatus, will resume in mid-March and run until the second week of April.
If there is a procedural delay in tabling the bill in the budget session, the government has the option to make the changes by ordinance, without waiting for the monsoon session of parliament, the person quoted above said under cover of anonymity.
The bill also aims to add a new chapter on cross-border bankruptcy resolution to the CIB, thereby filling a major gap in the current regime.
“The effort (in developing the bill) has been to respond in the best possible way to most of the concerns raised by the parliamentary standing committee. Making the law is one thing. Its implementation and the development of the ecosystem are other challenges. Vacancies in the benches of the National Company Law Tribunal are also being filled,” the person said.
The proposed amendments seek to address concerns raised by the parliamentary panel led by Lok Sabha MP Jayant Sinha in August. The panel expressed concern about steep discounts taken by lenders in some cases and delays of more than six months in assembling resolution plans in many cases.
The bill also incorporates feedback from two rounds of public consultations. It aims to empower bankruptcy resolution professionals hired by lenders to run troubled businesses to review the troubled business’s past conduct and take corrective action to protect the interests of stakeholders.
Under the proposal, transactions made from the date of bankruptcy filing, rather than admission of bankruptcy, will be subject to review by the company’s administrator. The idea is to prevent a delay in admitting a bankruptcy case from leading to an erosion of value, as important pre-bankruptcy transactions go unreviewed.
The current law allows resolution professionals to go to court to set aside a transaction of a bankrupt company dating back two years from the date of admission in the case of transactions between related parties and one year in the case of case of others.
Queries emailed to a Department of Corporate Affairs spokesperson on Saturday for comment went unanswered at press time.
“The application of the “look-back period” from the date the bankruptcy petition is filed increases the audit period to identify preferential or undervalued transactions, and thereby increases the scrutiny to identify any deliberate default,” said Divakar Vijayasarathy, Founder and Managing Partner of consultancy DVS Advisors LLP.
Experts also pointed out that ensuring rapid admission of cases would go a long way towards achieving the goals of the IBC.
“The institutional framework for bankruptcy resolution must be efficient and decisions must be made in a timely manner. Efforts to rescue distressed businesses will fail if courts are slow to admit cases,” said Anoop Rawat, Partner, Insolvency and Bankruptcy, Shardul Amarchand Mangaldas and Co., a law firm. In many cases, cases have been admitted more than a year after filing for bankruptcy, Rawat said, adding that ensuring the ecosystem has sufficient bench strength is also vital.
One of the proposals from the government panel behind the proposed changes was that the company’s rescue plan should be approved by the National Company Law Court within 30 days. This, according to Vijayasarathy, would ensure faster resolution and make it difficult for promoters to complete any preferred deals.
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