Company law amendments to add teeth to IBC

Ever since the enforcement of the
Insolvency and Bankruptcy Code (IBC), the Central government has been revising
various other related laws to ensure effective implementation of IBC provisions
and to ensure that no existing law collides with IBC – which could result in
the conflict defeating the purpose of IBC.

In this background, a notification has
been issued by the Central government to the public. This notification
reiterates that the underlying objective behind certain amendments made to the
Companies Act, 2013 recently is to append the IBC provisions and to make
certain the effective implementation of IBC, i.e., initiating strict action
against the defaulting companies and facilitate quick disposal of insolvency
cases.

As discussed in my earlier blogs, the
Companies Act, 2013 has been amended to supplement the IBC and ensure that
there will be no conflict between the Companies Act, 2013 and IBC. Both
enactments should supplement each other for their effective enforcement and to
further fortify ease of doing business sentiment in India.

For example, the following is a gist
of certain amendments formulated with the intent to back-up the strong
enforcement of IBC:

·    If any
company (defaulted in loan payment to banks and financial institutions) intends
to enhance the managerial remuneration in excess of permitted limits of the
company’s net profits – is obligated and mandated to obtain prior approval of
creditors along with approval obtained in general meeting.

·    Issue of
shares at discount to the creditors by the company is endorsed when its debt is
converted into shares in carrying out of any statutory resolution plan or debt
restructuring scheme.

·    No registered
valuer will be permitted for a period of three years (before or after the
appointment as valuer) to undertake valuation of any asset in which such valuer
has any direct or indirect interest.

It is evident that the Central
government is trying to come up with a mechanism to ensure that all roadblocks
are wiped out for effective implementation of IBC. Central government’s
endeavor is to make the IBC fully equipped with effective weapons to deal with
the menace of defaulting companies and to accelerate the disposal of insolvency
cases.

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.com.