Recently on 23rd November 2017, The President of India, Mr. Ram Nath Kovind gave approval to the insolvency and bankruptcy code (Amendment) Bill, 2017. The bill was passed to tighten the loopholes of the current code, and to make resolution process more efficient. The bill compensates for the Insolvency and Bankruptcy Code (IBC), 2016.
The IBC 2016 was passed to give a time restraining solution for weak and failing companies, either by dissolving or closure, protecting the interest of creditors.
The IBC 2016 had certain drawbacks which are being removed in the ordinance of 2017 such as:
Earlier, the Code defined resolution applicant as any person who could submit a resolution plan to the insolvency professional. Now with the new ordinance, only the company that received the invite from the insolvency professional can only submit the resolution plan.
The eligibility criteria for an invitation is decided by the insolvency professional along with the creditor’s committee and the Insolvency and Bankruptcy Board of India. This has been done to reduce the workload of insolvency professional.
The ordinance has restricted the entry of some party to introduce their resolution plan, it includes, 1) a willful defaulter, 2) an undischarged insolvent, 3) if his account is recognized as a Non-Performing Asset (NPA) for over a year, 4) Anyone who has been convicted for two or more years of imprisonment, 5) has been disqualified as a director under the companies act of 2013, 6) if he has been dealing in fraudulent transaction, has been denied by SEBI from trading in securities, or has been connected to any person mentioned above.
The bill has reduced some of the strict provisions of the ordinance. It aims to maintain balance in the trade-off between punishing wilful defaulters and ensuring a much better and effective insolvency process. The amendment helps promoters who had submitted resolution plans before ordinance restricted them from taking part in the resolution process of companies. The ordinance also enables asset reconstruction companies ARCs, Alternative Investment Funds like private equity funds and banks to take part in the bidding process.A company that is liquidated ends to exist, and the group of persons bidding for its assets may be insignificant.