Introduction
Navrang Saini, a board member of IBBI, recently said that IBC’s jurisprudence is still developing. Since the commencement of the code, there have been several Amendments in IBC (Insolvency and Bankruptcy Code). In the wake of coronavirus, Insolvency and Bankruptcy Code Ordinance 2020 has come as a relief package for Micro, small and medium enterprises (MSMEs), and corporate debtors in India.
A worldwide pandemic has led to the closure of businesses, events, and even small gatherings. This has led various business activities to a halt, leaving them with no earnings to pay the creditors. President of India, Ram Nath Kovind, with the powers bestowed on him by Article 123 of the Constitution, announced IBC ordinance 2020 on 5th June 2020, considering the unprecedented national health and economic emergency. The ordinance stated temporary suspension of Article 7, 9, and 10 of the IBC 2016, for the defaults occurring after 25 March 2020, which shall bind the creditors from filing cases against defaults occurring after the cut-off date. Applications filed for Insolvency processes will still be considered if a) they arise before 25th March 2020 and b) if the defaults are more than 1 crore.
This is the latest amendment, to know about all the Insolvency and Bankruptcy Amendments until today, head down!
KEY HIGHLIGHTS OF ALL THE IBC AMENDMENTS
Insolvency and Bankruptcy Amendment 2017
Under this amendment, Section 26A was added to the code, which banned the defaulting promoter from participating in the bidding process of the company. Section 235A was also added, which prescribed punishment for violating any provision of the Code.
It was noted that in the Synergies Dooray insolvency case, the promoters filed for insolvency which had outstanding liabilities of 900 crores, and bought back the company for 54 crores. Consequently, creditors had to take a haircut of 847 crores, recovering only 54 crores out of the liability of 900 crores. In regard to this, Section 29A was introduced, which barred any person, who :
- a promoter or any connected member of the company;
- an undischarged insolvent;
- has been convicted of any offence in the last 2 years or more;
- prohibited by SEBI;
- willful defaulter;
- whose account has been a non-performing account.
Insolvency and Bankruptcy Code (Second) Amendment 2018
[Enacted on 6th June 2018]
- IBC ordinance 2018 introduced Section 12A. It allowed the creditors to withdraw the insolvency application, until 30 days of the filing. After the Brilliant Alloys vs S Rajagopal case, insolvency applications could be withdrawn even in a later stage, if agreed by 90% of the creditors.
- It gave homebuyers in the committee of creditors, giving them the same status as financial creditors.
- All the decisions in the committee of credits will be made in accordance with the threshold of 51% of the creditors. Some important decisions to be made on 66%.
- It provided MSMEs exemption from clauses of Section 29A. Promoters of MSMEs were allowed to buy back their companies, provided that he/she is not a willful defaulter, and other prescribed disqualifications.
- Guarantee payments were exempted from the moratorium period (exemption from paying dues while the insolvency process is going on).
Insolvency and Bankruptcy Code Amendment 2019
Since the commencement of IBC, several loopholes have become evident. Many cases would go beyond the time limit of 270 days, it was difficult to hold onto the laws, with numerous challenges constantly emerging in the insolvency process. Essar Steel’s case was pertinent in comprehending the flaws of the code. Supreme Court(neglecting NCLAT’s order) passed the verdict in Essar Steel case that financial and operational creditors should be treated fairly, without discrimination. Multiple cases were being filed under NCLT, resulting in NCLT having more judges than the Supreme Court of India
- It made it mandatory for a resolution case to complete within 330 days. If the committee of creditors did not reach a resolution, the company was to be liquidated.
- Under the resolution plan, it is mandatory that operational creditors are provided the 1) amount that is more than the liquidation value of their debt, or 2)amount that would have been received if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in section 53 of the IBC.
- It provided a provision for financial creditors disagreeing to a resolution plan, to receive not less than their liquidation value.
- It amended the resolution plan under the principal act and added the provisions of demerger, merger, or amalgamation for restructuring a company.
- Adjudicating authorities had to provide reasons for why an application was not admitted or rejected in the 14 days time limit, and the limit could be increased in exceptional cases.
- In the rise of litigation by tax authorities, the amendment stated that the resolution plan under IBC is binding to other State, Central, and local governments.
This blog is written by Dharna Prasad, Hindu College.
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