The Insolvency and Bankruptcy Code (IBC), 2016 was enacted to ensure more effective, sensitive, holistic and timely financial revival or liquidation or restructuring of the stressed assets as well as protecting the interests of all the industry stakeholders and financial and operational creditors. It replaced and also provided a better mechanism to deal with the problem of stressed assets as compared to the previous laws like Sick Industries Companies Act 1985, the recovery of debts due to banks and financial institutions act, 1993 etc.
In India we have seen that in every 10 years there was a new law to deal with the problem of stressed assets. Like Debt Recovery Tribunal in 1993, National Company Law Tribunal in 2013 under the new companies act of 2013 which replaced the erstwhile Company Law Board operating under the Companies Act, 1956. in Even the Reserve Bank of India (RBI) had to withdraw its February 12, 2018 circular that withdrew restructuring schemes such as S4A, Corporate Debt Restructuring (CDR), Strategic Debt Restructuring (SDR) to name a few.
However, three years down the line, faced with several practical and procedural bottlenecks, the IBC 2016 is still improving and is in the evolving stage and the recent amendments in IBC Amendment Bill 2019, as approved by the Union Cabinet on July 17, 2019 are in this direction only and which are aimed at bridging the gaps between theoretical idolism and practical implementation.
The proposed amendments in IBC Amendment Bill 2019 are discussed as under:
- Deadline of 330 days including litigation period for Completion of Resolution Plans:With a view to make the stipulated deadline for completion of resolution plans effective and meaningful, the proposed amendment provides for the deadline of 330 days inclusive of the litigation period, for completion of the resolution plan.
- Enhancement in Powers of Committee of Creditors (CoC):It shall provide the much needed flexibility to the Committee of Creditors (CoC) to decide on the distribution of claims on the basis of commercial consideration within the broad framework of mandatory order of priority as stipulated in section 53 of IBC 2016 which deals with distribution of assets when the company is under the liquidation process.
- Supremacy of Financial Creditors over Operational Creditors:In a recent resolution plan in Essar Steel Case, National Company Law Appellate Tribunal (NCLAT) had treated financial creditors (banks and other secured creditors) to be at par with operational creditors in distribution of their respective claims and the said resolution plan has been challenged by the concerned financial creditors in the Supreme Court. The amendment reiterates and reinforces the supremacy of financial creditors over operational creditors, and simultaneous guarantee of a minimum liquidation value to the operational creditors.
- Majoritarian Criteria of 50% or more for Voting among a particular class of creditors:The amendment provides that a majority vote of 50% or more from a particular class of creditors will be counted as 100% vote in favour of or against a resolution plan by that particular class of creditors in place of the existing criteria of minimum 66% votes.
- Binding Nature of Resolution Plans under IBC:In line with the recent judgement of the Hon’ble Supreme Court in the case of PCIT vs. Monnet Ispat and Energy Ltd upholding the overriding nature and supremacy of the provisions of the IBC Code 2016 over any other enactment in case of conflicting provisions, by virtue of a non obstante section 238 of IBC Code 2016, the proposed amendment in IBC Amendment Bill 2019, provides that the bankruptcy resolution or liquidation arrived at under IBC shall be binding on central, state and local governments including the income tax and other similar tax authorities.
- Recognition of Mergers, Demergers and Amalgamations as alternative parts of Resolution Plans under IBC:The proposed amendment in IBC Amendment Bill 2019, provides for the inclusion of alternative restricting schemes such as mergers, demergers and amalgamations as part of the resolution plan. At present, the IBC stipulates either rehabilitation/revival of the stressed company as a going concern or its liquidation and does not provide for any other alternative restructuring schemes such as mergers, demergers and amalgamations as part of resolution plan.Therefore, all the above proposed amendments are really a very positive and welcome initiatives aimed at ensuring more flexibility, viability, effectiveness and faster implementation of resolution plans under IBC and in reducing the unnecessary pro-longing litigations and to bring in the much needed stability and certainty in the IBC resolution process as well as the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC).