The President of India recently gave his assent to an amendment in the Insolvency and Bankruptcy Code that barred a majority of defaulting promoters from buying back their assets.
- The changes via an ordinance made at least nine categories of persons ineligible for submitting a resolution plan for the indebted companies facing insolvency action at the National Company Law Tribunal.
- The move came at a time when about 50 of the India’s biggest defaulting companies face insolvency proceedings.
- Amendments to the code said that those whose accounts have been non-performing for a year will not be allowed to participate in the resolution plan.
- Those who have not have settled overdue amounts on the said accounts will also not be permitted.
- The newly introduced provisions indicate that promoters of at least the first list of 12 large cases referred to the IBC under direction by the RBI would not be allowed to bid.
Purpose of introducing changes:
- The aim of the code is to strengthen further the insolvency resolution process, it has been considered necessary to provide for prohibition of certain persons from submitting a resolution plan, who on account of their antecedents, may adversely impact the credibility of the processes
- The ordinance then specifies the categories of persons who are deemed ineligible to participate in resolving a corporate entity’s debt once it has been put under the process of insolvency resolution by creditors.
- It would prevent the ‘unscrupulous’, undesirable persons from misusing the provisions of the IBC and would promote the sale of distressed assets to global investors.
- It will include promoters and those in management whose loan accounts are classified as non-performing assets for one year or more, as well as any person disqualified to act as a director under the Companies Act.
About Insolvency and Bankruptcy Code:
- The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India that administers the insolvency proceedings and establishes a framework for insolvency resolution processes effectively.
- It provides en enabling legal framework for the “reorganization and insolvency resolution of corporate persons in a time bound manner for maximization of values of assets of such persons and to promote entrepreneurship.
- The Code outlines separate insolvency resolution processes for individuals and companies
- The Code acts as a regulator by establishing the Insolvency and Bankruptcy Board of India.
- The board oversees the insolvency proceedings in the country and regulates the entities registered below it. The Board has 10 members, which includes representatives from the Ministries of Finance and Law, and the Reserve Bank of India.
- The insolvency process is accomplished by licensed professionals. These professionals also control the assets of the debtor during the insolvency procedure.
- The Code proposes two distinct tribunals to supervise the process of insolvency resolution, for individuals and companies:
- The National Company Law Tribunal for Companies and Limited Liability Partnership firms;
- The Debt Recovery Tribunal for individuals and partnerships