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posted 7 years ago
Following the recommendations received from the Insolvency Committee, the Union cabinet has approved much-awaited ordinance amending the Insolvency and Bankruptcy Code (IBC) which is to be ratified by the President.
The underlying intent in approving the ordinance with such alarming urgency is to modify the IBC to eradicate the roadblocks barricading the smooth enforcement of the IBC and facilitate the speedy disposal of the insolvency cases.
The following is the gist of the IBC modifications which are going to be effectuated very soon:
1. Permitting the promoters of Micro, Small and Medium enterprises (MSME) to bid for their companies, provided they are not listed under the category of wilful defaulters – As of now, the promoters are prohibited from bidding for their companies and spate of liquidation would fetch little to the bankers.
Granting non-defaulting promoters the flexibility to bid for their companies will facilitate the bankers to recovery major chunk of their dues. According to the reports, the non-performing assets of MSME is recorded at staggering INR 77,000 crore.
2. Provision of treating the home buyers on equal footing with the creditors will empower the home buyers with requisite tools to have a bigger say in the resolution process.
3. Reduction of the approval threshold percentage from existing 75% to 66% of committee of creditors to facilitate quick resolution of matters connected with the insolvency process.
4. Another prospect is that the promoters of the companies will be allowed to withdraw the application for the insolvency process that is admitted by the national company law tribunal (NCLT) and lenders – provided 90% of the lenders agree to such withdrawal.
5. In an attempt to expand the horizon of the pool of the bidders, the exclusion norms under Section 29(A) of the IBC are narrowed down to facilitate the pure play financial entities to bid for the distressed assets.
6. The definition of the financial entities would be well articulated to permit certain financial entities (even though they invested in defaulting entity) to bid for the distressed assets. However, this prospect is not applicable to a financial entity related to corporate debtor.
A serious enforcement of these IBC amendments will certainly expand the pool of bidders ensuring that the lenders can recover their loans to the maximum extent possible and facilitate the speedy disposal of the insolvency cases – mostly importantly, homer buyers will be accorded protection on par with the lenders. So far, they have been left high and dry – not getting their promised flats nor refunds.
Research inputs by Paruchuri Baswanth Mohan
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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.in
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