Amended IBC sets threshold for initiating corporate insolvency cases

The IBC has taken a big step in providing a clean slate to buyers of stressed companies.

Business Standard : The government has proposed at least 100 individuals or 10 per cent of creditors such as homebuyers have to come together to initiate corporate insolvency proceedings under the amendments to the Insolvency and Bankruptcy Code (IBC).

Adding a clause to Section 7 of the IBC, the IBC Amendment Bill, tabled in the Lok Sabha on Thursday, has proposed to make this change retrospectively. It seeks to give 30 days for cases where a single homebuyer has taken a company to insolvency to comply with the revised criteria from the time of the commencement of the Act.

The proposed threshold will be applicable in all cases where a financial debt is owed to a class of creditors or is in the form of securities or deposits, and provides for appointing a trustee or agent to act as authorised representative for all the financial creditors.

“Overall the theme of the amendments proposed in the IBC is to remove the hurdles being faced and to make it more attractive for investors,” said Manoj Kumar, partner, Corporate Professionals.

The government has not, however, as demanded by industry bodies, yet announced an increase in the overall threshold for a company — currently Rs 1 lakh — to be admitted to the corporate insolvency resolution process.

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The IBC has taken a big step in providing a clean slate to buyers of stressed companies by barring criminal proceedings such as attachment, seizure, or retention of property of such companies for offences committed before the initiation of insolvency proceedings.

The Amendment Bill has introduced clause 32A in this regard: “Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force … The corporate debtor (company undergoing insolvency) shall not be prosecuted for such an offence from the date the resolution plan is approved.”

Anshul Jain, partner, PwC India, said: “While this will be a great reprieve to successful bidders, the IBC itself cannot fix this issue … Other laws have to be amended accordingly to make the intent of this amendment felt.”