The Insolvency and Bankruptcy Code (Amendment) Bill – 2019 has been passed by both the houses of Parliament

Protects successful bidders of insolvent companies from risk of criminal proceedings

• Both the houses of parliament have passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2019 which was introduced in Rajya Sabha on July 24, 2019
• The Bill amends the Insolvency and Bankruptcy Code, 2016 which provides a time bound process for resolving insolvency in companies and among individuals
• The amendment aims to protect the successful bidders of insolvent companies from risk of criminal proceedings

Salient highlights of the Bill

• Under the Code, a financial creditor may file an application before the National Company Law Tribunal (NCLT) for initiating the insolvency resolution process. The NCLT must find the existence of default within 14 days
• A Committee of Creditors (CoC) consisting of financial creditors will be constituted for taking decisions regarding insolvency resolution
• The CoC may either decide to restructure the debtor’s debt by preparing a resolution plan or liquidate the debtor’s assets
• The CoC will appoint a resolution professional who will present a resolution plan to the CoC
• The CoC must approve a resolution plan, and the resolution process must be completed within 180 days
• This may be extended by a period of up to 90 days if the extension is approved by NCLT
• If the resolution plan is rejected by the CoC, the debtor will go into liquidation
• The Code provides an order of priority for the distribution of assets in case of liquidation of the debtor

The Bill addresses three issues

• It strengthens provisions related to time-limits
• It specifies the minimum payouts to operational creditors in any resolution plan
• It specifies the manner in which the representative of a group of financial creditors should vote

Configurations of the Bill

• The Code provides that the resolution plan must ensure that the operational creditors receive an amount which should not be lesser than the amount they would receive in case of liquidation
• The Bill amends this to provide that the amounts to be paid to the operational creditor should be the higher of:

1. Amounts receivable under liquidation, and
2. The amount receivable under a resolution plan, if such amounts were distributed under the same order of priority
3. As per the Code, the NCLT must determine the existence of default within 14 days of receiving a resolution application. Based on its finding, NCLT may accept or reject the application

• The Bill states that in case the NCLT does not find the existence of default and has not passed an order within 14 days, it must record its reasons in writing

Time limit for resolution process

• The Code states that the insolvency resolution process must be completed within 180 days, extendable by a period of up to 90 days
• The Bill adds that the resolution process must be completed within 330 days
• This includes time for any extension granted and the time taken in legal proceedings in relation to the process
• On the enactment of the Bill, if any case is pending for over 330 days, the Bill states it must be res

Pic courtesy : Zee Business