NEW DELHI: The Union Cabinet on Wednesday cleared seven amendments to the Insolvency and Bankruptcy Code (IBC), including enforcement of a strict 330-day timeline for completion of the resolution process, including judicial if any.
According to an official release, the amendments would “enable the government to ensure maximisation of value of a corporate debtor as a going concern, while simultaneously adhering to strict timelines”.
The amendments were necessitated by increasing instances of delays in the insolvency process, owing to litigations. The resolution processes in cases of companies like Essar Steel and Jaypee Infrastructure had exceeded the initial timeline of 270 days, due to several litigations filed by promoters and creditors.
Also, putting to rest confusions regarding the rights of various creditors, the Cabinet approved an amendment which proposed that the financial as well as operational creditors will be paid as per their hierarchy specified in the IBC. The amendment also allows any decisions to be based on the highest voting share of financial creditors and allows dissenting creditors to get a minimum liquidation value retrospectively.
Further, the Committee of Creditors may take the decision to liquidate the corporate debtor, any time after constitution of the committee and before preparation of Information Memorandum for the resolution, sources said.“This will have retrospective effect, where the resolution plan has not attained finality or has been appealed against,” the release said.
The amendments are especially crucial in case of Essar Steel; the IBC amendment clarifies on the operational creditors’ claims and the Ministry of Corporate Affairs can ask the court to revisit its order.
Another crucial amendment to the IBC mandates that the bankruptcy resolution or liquidation decided under the bankruptcy framework is binding on Central, state and local governments, to whom the insolvent company owes dues.
“The approval of the Cabinet for IBC amendments are heartening and will clear several roadblocks currently holding up resolution under the law, in particular vesting with the Committee of Creditors the ability to take into account commercial considerations in respect of distributions under the resolution plan; making the resolution plan binding on all stakeholders and comprehensive restructuring through schemes will help foster flagging investor confidence,” said Cyril Shroff, managing partner, Cyril Amarchand Mangaldas.