Insolvency and Bankruptcy Code amendments - an ongoing saga

There is no end to IBC changes. Like
it happened in demonetisation exercise, IBC provisions are undergoing frequent
changes.

Last month only, the Government issued
an ordinance to amend the Insolvency and Bankruptcy Code (IBC) with the intent
to stop persons (including promoters) with a non-performing account of more
than a year who had not cleared the overdue amount, interest and other charges
before the submission of a resolution plan of insolvent companies from taking
part in the resolution process.

This ordinance was issued to avoid a
backdoor entry for erring promoters to take control over their companies and
taking benefit of their own misadventures and misdeeds. There was a lot of hue
and cry from several quarter over this possibility.

However, the government seems to have
had a change of heart very soon.

Supposedly, a bill is in making to
replace the ordinance and allow the promoters of insolvent companies to
participate in the resolution process, provide they to repay their dues. Such
defaulters shall be eligible for submitting a resolution plan if they have
cleared the outstanding amount in question before submitting the plan. The
promoters may be given some time to clear the overdue amounts under the new
norms specified in this regard. The new provisions may also ease some more
norms to make the processes simpler and understandable.

There was a blanket ban on barred
corporate guarantors of insolvent entities under the ordinance as well. The
proposed Bill may provide some relaxation in this regard.

Further, entities like alternative
investment funds (AIFs) and asset reconstruction companies (ARCs), banks shall
be allowed to participate in bidding process.

One can hope these proposed changes
make the IBC more practical and effective and desired objective of a speedy and
fair resolution can be achieved.

***************

About the author :

Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in “The A-List – India’s Top 100 Lawyers” by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at bhumesh.verma@corpcommlegal.com.