Cabinet approves ordinance to introduce changes to IBC

The Union Cabinet on Wednesday approved an ordinance to introduce certain changes to the Insolvency and Bankruptcy Code (IBC).

"Some changes have been proposed to the Insolvency and Bankruptcy Code and since these are being done by an ordinance, we cannot give the details of the proposals that the cabinet has recommended to the president," Union Finance Minister Arun Jaitley announced, while addressing the media here.

The changes proposed are expected to help rationalise the process of selecting buyers for stressed assets.

The proposal consists of the following provisions with a view to improving the quality of Insolvency Resolution, sources say.

- Prescribing eligibility criteria with respect to prospective Resolution Applicants, having regard to the complexity and scale of operations of business of the Corporate Debtor and such other conditions as may be specified by the Insolvency and Bankruptcy Board of India(the Board);

- Inserting a new Section to lay down a comprehensive criteria with respect to persons ineligible to be Resolution Applicants, which would, inter alia, include wilful defaulter, undischarged Insolvent, disqualified director, a person who has indulged in preferential transaction or under-valued transaction or fraudulent transaction as determined by the Adjudicating Authority, and a person who is a promoter or in the management or control of such persons whose account is classified as non-performing assets beyond a prescribed duration;

- Providing for a robust due diligence framework enabling the Committee of Creditors to make proper assessment of the creditworthiness, credibility and other relevant parameters of the applicant as may be prescribed by the Board, before approving a Resolution plan.

If sources are to be believed, in the initial phase of Corporate Insolvency Resolution Process (CIRP) under the recently enacted Insolvency and Bankruptcy Code, a number of cases are likely to have long pending default requiring deep haircut for the Creditors.

?According to sources, since a number of Corporate Debtors undergoing CIRP were passing the stage of submission of resolution plans and their approval, it had become imperative to take immediate action to prevent undeserving persons from taking over the Corporate Debtors undergoing Corporate Resolution Insolvency Process through back door entry, which necessitated promulgation of the Ordinance.

The Insolvency and Bankruptcy Code, 2016 provides for an effective and robust legal framework for time-bound Insolvency Resolution to release assets locked up in Non-Performing Asset (NPA) and promote maximisation of value of assets, failing which, under-utilised resources of unviable business are released through liquidation.