Govt clears 7 amendments to insolvency law; resolution plan binding on all stakeholders

In a significant move, the government Wednesday cleared seven amendments to the insolvency law that seeks to put in place a 330-day deadline for corporate resolution process, including litigation and other judicial processes, as well as make resolution plan binding on all stakeholders.

Experts said the changes would help in clearing various road blocks for resolution process and smoothen the process as well as save time.

The Insolvency and Bankruptcy Code (IBC) has been amended twice so far.

As per the changes cleared by the Cabinet on Wednesday, the resolution plan would be binding on all stakeholders including the central government, any state government or local authority to whom a debt in respect of the payment of the dues may be owed.

Further, the Committee of Creditors (CoC) may take the decision to liquidate the corporate debtor, any time after constitution of the committee and before preparation of Information Memorandum for the resolution, sources said.

With the amendments, there would be more clarity on allowing comprehensive corporate restructuring schemes such as mergers and demergers as part of the resolution plan.

There would be a deadline for completion of corporate insolvency resolution process within an overall limit of 330 days, including litigation and other judicial processes, the sources said.

At present, the deadline is 270 days but many cases have been going for longer time, mainly on account of litigations.

Analysis of available data shows that there are delays in admission of applications and spillage of resolution cases well over the time limits presently laid down in the Code, they added.

Within the powers of the CoC, commercial consideration would be taken into account when it comes to distribution proposed in resolution plan.

The amendments are aimed at filling critical gaps in the corporate insolvency resolution framework while at the same time maximising value from the resolution process, an official release said.

The Cabinet has approved the Insolvency and Bankruptcy Code (Amendment) Bill, 2019.

Cyril Shroff, managing partner at law firm Cyril Amarchand Mangaldas said the amendments would clear several road blocks that are holding up resolution under the Code.

"Vesting with the CoC the ability to take into account commercial considerations in respect of distributions under the resolution plan; making the resolution plan binding on all stakeholders and comprehensive restructuring through schemes will help foster flagging investor confidence," Shroff said.

About the amendments, Uday Bhansali, President (Financial Advisory) at consultancy Deloitte India said dissenting creditors and operational creditors have to accept liquidation value or sum offered in the resolution plan, whichever is higher.

"Allowing all possible corporate actions as part of the proposed resolution plans can also help save time and effort for applicants.

"Clarity that a CoC does not have to go through the motions in case a resolution is unlikely and go for liquidation earlier is also a welcome step," Sanjeev Krishan, Partner and Leader (PE & Deals) at consultancy PwC India said.

Risk consulting firm Kroll's MD and Head of South Asia Tarun Bhatia said keeping 330 days as the maximum time allowed for bankruptcy resolution, including for litigation and other judicial processes, would ensure that there is a timely resolution.