Cabinet approves changes in Insolvency & Bankruptcy code

The ordinance aims at putting in place safeguards to prevent unscrupulous persons from misusing or vitiating the provisions of the Code

The Code that came into effect from December a year ago, allows a market-determined and time-bound insolvency resolution process under the eyes of the Corporate Affairs Ministry.

These measures are likely to encourage private investors - both domestic and global - to consider bidding for distressed assets as the fear of meddling promoters is substantially reduced.

Under current law, wilful defaulters are classified as firms or individuals who own large businesses and deliberately avoid repayments. According to sources quoted by The Economic Times, given that the criteria to define a willful defaulter or fraudulent promoter remains the same, most of the promoters remain eligible to bid for the companies. He further said one solution could be that the NPA holder at least comes forward and services the interest by Rs 10-15,000 crore in an asset of, say, Rs 1 lakh crore.

The President's nod for the ordinance is expected shortly.

He was responding to a query as to why the government was promulgating an Ordinance when Parliament session is to be convened next month. There have been concerns that absence of clarity on this matter could allow promoters to regain control of the stressed companies under liquidation, and that too at a possibly discounted rate.

More than 300 cases have been admitted for resolution under the Code by the National Company Law Tribunal.

President Ramnath Kovind has given his assent on Thursday to the ordinance to amend the Insolvency and Bankruptcy Code, 2016 aimed at strengthening the government's fight against the rising insolvency cases.

"The amendment also provides check by specifying that the Committee of Creditors ensure the viability and feasibility of resolution plan before approving it". Besides, the Insolvency and Bankruptcy Board of India (IBBI) - which implements the Code - is being given additional powers.

The government passed an executive order that aims to "keep-out such persons who have wilfully defaulted, are associated with non-performing assets, or are habitually non-compliant and, therefore, are likely to be a risk to successful resolution of insolvency of a company", the corporate affairs ministry said in a statement. Commenting on the ordinance, an Essar Steel spokesperson said the company is not a wilful defaulter.

Advisory KPMG India's Partner Sanjay Doshi said that insulating the insolvency process from undue influence is very critical for its success.

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