The legislature has brought in eight new amendments to the Insolvency and Bankruptcy Code, 2016 to eliminate certain interpretive ambiguities and to ensure that the Code remains effectual. The amendment was essential so as to oversee that the Code is on par with dynamic state of affairs.
Extension of Deadline for The Completion Of CIRP
The Bill seeks to ensure timely admission of insolvency cases and completion within the newly set deadline of 330 days (it was 270 days earlier). Further, all pending resolution processes which have not been completed within 330 days, shall be completed within 90 days of the commencement of the Amendment Act, 2019. In section 12 of the principal Act, in sub-section (3), after the proviso, the following provisos are inserted, namely: ––
“Provided further that the corporate insolvency resolution process shall mandatorily be completed within a period of three hundred and thirty days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under this section and the time taken in legal proceedings in relation to such resolution process of the corporate debtor.”
The new timeline of 330 days to complete the CIRP includes all the extensions that may be granted by the adjudicating authority.
Clarificatory Amendment – Resolution may include merger/demerger
Section 5(26) of the principal Act –
Resolution plan means a plan proposed by resolution applicant for insolvency resolution of the corporate debtor as a going concern. The amendment provides for an explanation so as to clarify that a resolution plan may include provisions for the restructuring of the corporate debtor, including by way of merger, amalgamation and demerger. This insertion is mere clarificatory as he CIRP Regulations [regulation 37] is presently broad enough to cover all possible solutions.
Approved resolution plan to be binding on Governments/Government Authorities
Section 31 of the principal Act–
According to section 31, a resolution plan approved by the adjudicating authority, shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. the amendment comes as a clarification for removal of doubts, as there were concerns regarding waiver of statutory dues under resolution plans. This is without prejudice to the provision of section 30 relating to operational creditors, as statutory dues fall within the ambit of operational debt.
The amendment includes “the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed” in the list of stakeholders bound by the plan.
Discretion with The Committee of Creditors To Liquate The Corporate Debtor Before Resolution
The Creditors can entirely decide whether the Corporate Debtor should go for a CIRP or liquidation. The discretion lies with the Committee of Creditors now. Section 33 (2) of the principal Act says where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors, approved by a majority of 66%, to liquidate the corporate debtor, the adjudicating authority shall pass liquidation order. The judiciary has been emphasizing on resolution and in some cases ruled that committee of creditors cannot opt for liquidating the entity without even trying for resolution.
The amendment makes it clear that the ultimate decision lies with creditors – whether to keep the entity alive or to liquidate it, and the creditors can decide so at any point of time
The amendment empowers the committee of creditors to approve liquidation of the corporate debtor anytime after its constitution. The approval for liquidation can be given even before preparation of information memorandum.
The new Insolvency and Bankruptcy Code (Amendment) Bill, 2019 is available at: https://www.ibbi.gov.in/uploads/whatsnew/bill