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.”

CCD crisis: Business failures should not be taboo, says Nirmala Sitharaman

Parliament approves changes in IBC, providing greater clarity over distribution of proceeds of auction of loan-defaulting companies.

Reacting to the death of Café Coffee Day founder V G Siddhartha, Finance Minister Nirmala Sitharaman said business failures should not be a taboo.

Responding to the debate on the amendments to the Insolvency and Bankruptcy Code (IBC) in Lok Sabha on Thursday, Sitharaman said, “Business failures in this country should not be a taboo, or looked down upon. On the contrary, we should give an honourable exit or resolution to the problem in letter and spirit of the IBC.”

In the letter, purportedly written by V G Siddhartha, there was mention of harassment by the Income Tax Department. The I-T department has denied the charges.

Telugu Desam Party MP Jayadev Galla said businesses may fail because of economic downturn or business cycle. Galla also said that accountability of banks need to come under scrutiny. “Signing of personal guarantee (by industrialist to take loan) is leading to (them) taking an extreme action like suicide,” he said.

Biju Janata Dal MP Pinaki Misra referred to the death of the coffee tycoon, saying it is unfortunate that the insolvency law “should continuosly continue to grow and expand in our country”. He said it does not bode well for the country because “that is not how you reach the $5-trillion mark”.

On issues concerning Jet Airways, Sitharaman said the stakeholders were free to work out a resolution plan and they were not obliged to use the IBC, which is optional.

Later, Parliament approved changes in IBC, providing greater clarity over distribution of proceeds of auction of loan-defaulting companies.

The amendments give creditors to a loan-defaulting company explicit authority over the distribution of proceeds and fix a timeline of 330 days for resolving cases under IBC, including time taken for litigation.

The amendments, Nirmala said, would also bring in more clarity on various provisions, including time-bound disposal at the application stage for resolution plan and treatment of financial creditors.

Among others, the approved resolution plan would be binding on Central and state governments as well as statutory authorities.

Sitharaman said the proposed amendments also respond to issues of financial creditors in the wake of a recent ruling with respect to financial and operational creditors.

Business Standard