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IBCInsolvency & Bankruptcy CodeAmendment to The Threshold For The Requisite Voting Percentage At CoC Meetings (Insolvency & Bankruptcy Code, 2016, India)

October 5, 2018by GLC & Partners

An Insolvency Law Committee (“the Committee”) was set up on 16th November 2017 to recommend issues to the Government that are arising from implementation of the Insolvency and Bankruptcy Code, 2016 (“the Code”). The Committee in its report (the “Report”) dated 26th March 2018 has made several recommendations for amendments to the Code, including reducing the threshold for the requisite voting percentage, at meetings of the Committee of Creditors (“CoC”), from the previous 75% to 66% for major decisions and the previous 75% to 51% for routine decisions to be made during the Corporate Insolvency Resolution Process (“CIRP”).

In furtherance of the Committee’s report on proposed amendments, the President has signed the ordinance [Ord. No 6 of 2018] to amend the Code.

The high threshold of 75% voting share to make decisions during the CoC meetings was beginning to impede CIRP. After due deliberation on the issue, the Committee on page 45 of the Report agreed that, “to further the stated object of the Code i.e. to promote resolution, the voting share for approval of resolution plan and other critical decisions may be reduced from 75 percent to 66 percent or more of the voting share of the financial creditors. In addition to approval of the resolution plan under Section 30(4), other critical decisions are extension of the CIRP beyond 180

days under section 12(2), replacement or appointment of RP under sections 22(2) and 27(2) and passing a resolution for liquidation under section 33(2) of the Code. Further, for approval of the other routine decisions for continuing the corporate debtor as going concern by the IRP/RP, the voting share threshold may be reduced to 51 percent or more of the voting share of the financial creditors.”

To summarize, the reduction in the requisite voting percentage from 75% to 66% to pass decisions at CoC meetings are:

1.Extension of Time period: The time period for the completion of insolvency resolution process under Section 12(2) can now be extended from 180 days to no more than 90 days which shall not be granted more than once.

2. Appointment or Replacement of resolution professional: The members of the CoC, under Section 22(2), may resolve to appoint the interim resolution professional as the resolution professional or appoint a new one, or may replace the existing resolution professional under Section 27(2).

3. Approval for Certain Actions: Section 28(1) lays down “certain actions” which shall not be “approved by the committee of creditors unless approved by a vote of 66% of the voting shares” as provided under Section 28(3).

4. Submission of Resolution Plan: The CoC, under Section 30(4), shall approve a resolution plan.

5. Initiation of liquidation: The resolution professional shall, under Section 33, intimate the Adjudicating Authority of the decision of the CoC to liquidate the corporate debtor.

The reduction in the requisite voting percentage from 75% to 51% to pass decisions at CoC meetings are:

  1. Section 21(8) states that “Save as otherwise provided in this Code, all decisions of the committee of creditors shall be taken by a vote of not less than fifty-one per cent. of voting share of the financial creditors:”

Below mentioned is the newly inserted Section 12A, which enables the withdrawal of an application for insolvency post admission:

  1. Withdrawal of Application: Section 12A has been newly inserted to allow the Adjudicating Authority to withdraw the application for insolvency under sections 7, 9 or 10, “on an application made by the applicant with the 90% voting share of the committee of creditors”.