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ComplianceIBCInsolvency & Bankruptcy CodeReduction in the Voting Threshold under the Insolvency And Bankruptcy Code (Second Amendment), 2018

July 21, 2019by GLC & Partners

The Insolvency and bankruptcy Code (Amendment) Amendment, 2018 has been brought into force on 6th June 2018, which has been regarded as one of the most prominent and substantive amendment to the code till now.

This amendment seeks out to remove the loopholes which ought to reduce the efficiency of the Code and also to ease the working of IBC. The Amendment has shown the government’s efforts to curb the ambiguities in the code.

The new amendment includes amendments which are clarificatory, curative and substantive in nature.

 

REDUCTION IN THE VOTING THRESHOLD

For extension of CIRP period, the COC voting threshold is reduced from 75% to 66% of voting share.

The high threshold of 75% of voting share was proving to be a road-block. Hence, a suitable amendment has been made to reduce the same to 66% of voting share.

Section 21 amended so as to reduce the voting threshold to 51% from 75% for all matters except where otherwise specified. Section 12 amended so as to reduce the requirement of 75% majority approval to 66% for extension of time for corporate insolvency resolution process. Similarly, section 22 has been amended to require only 66% assenting majority for appointment of resolution professional. Under section 27, 66% of majority will be required to replace existing resolution professional. The same majority would be required for actions to be undertaken by the resolution professional under section 28, and for approval of resolution plan under section 30, and for deciding on liquidation under section 33.

The below table gives a detailed view of the changes made with respect to the voting threshold vide the amendment.

PROVISION PRE-AMENDMENT

POST AMENDMENT

Section 30 – approval of resolution plan 75% 66%
Section 12 – extension of time for CIRP 75% 66%
Section 22, 27 – Appointment or replacement of resolution professional 75% 66%
Section 33 – passing a resolution for liquidation 75% 66%
Section 28 – CoC 75% 66%
Corporate Debtor to continue as a going concern 75% 51%

 

 

COMMENTS

The Amendment provides for reduction in the cut-off majority for decision-making by CoC from 75% to 66% for all critical decisions. So, no more possible for a mere 26% of the members of the CoC to take the entity down to liquidation path. The move is therefore to incentivize resolution under the Code.

Further, there are several matters of routine nature which require approval of CoC. In routine matters, the limit has been reduced drastically from 75% to 51%, therefore easing out the processes for the resolution professional.