A high-level panel set up to review the Insolvency and Bankruptcy Code (IBC) is likely to have recommended against extending a 270-day moratorium for restructuring a company after its case is admitted by the National Company Law Tribunal (NCLT). The committee submitted its report to the government on Monday.
There is a demand for relaxing the moratorium since the litigation initiated by various parties comes in the way of restructuring a company and delay the process.
According to IBC norms, restructuring a company has to conclude within 180 days after an insolvency case is admitted by the NCLT. This deadline can be extended by 90 days, after which no more extensions are permitted.
A company's assets will be liquidated after 270 days.
Sources said the committee had recommended this deadline not be relaxed. The relevance of the IBC would cease to exist if the moratorium period was extended, they added.
Starting April, 11 of the 12 cases referred to the NCLT after the Reserve Bank of India (RBI) asked banks to do so, will be nearing the end of the 270-day period for presenting a resolution plan to the tribunal.
The recommendations, if accepted by the government, will come into effect prospectively. Their implementation will require amendments to the code, which may not come about in the ongoing session of Parliament. However, the government could promulgate an Ordinance. The current session of Parliament ends on April 6.
The committee's recommendations are also likely to include relaxing the conditions for promoters of small and medium enterprises (SMEs).
Promoters of companies with bad debts of more than a year may be allowed to bid for companies undergoing insolvency resolution, provided the bidding does not require lenders to take haircuts. This may be subject to a threshold, effectively meaning that only promoters of SMEs may be allowed to do so. Earlier, the government had barred promoters whose loans had turned into non-performing assets for more than one year, wilful defaulters and anyone associated with them from submitting resolution plans during insolvency proceedings.
Micro enterprises have revenues of less than Rs 50 million; small enterprises Rs 50 million to Rs 750 million and medium enterprises Rs 750 million to Rs 2.5 billion.
The move is driven by the realisation that SMEs are usually promoter-driven and attract resolution mainly from the promoters themselves. Even where other financial investors are involved, the promoters are typically roped in.
The government recently said the insolvency process of such companies could be treated differently. A section of SMEs have faced liquidation after they were unable to arrive at third-party resolution.
Experts said of the 300-odd SMEs undergoing insolvency proceedings, at least 200 would face liquidation with restrictions on promoters presenting resolution plans.
The restrictions on promoters come under Section 29 A of the Insolvency and Bankruptcy Act.
The committee, headed by Corporate Affairs Secretary Injeti Srinivas, was constituted to consider changes to the IBC. Apart from these, issues on the bankruptcy provisions, cross-border insolvency and the rights of home buyers were also looked into by the committee. The committee also had lawyers dealing with insolvency cases and Insolvency and Bankruptcy Board of India Chief M S Sahoo as members.