Insolvency And Bankruptcy Code Amendment Bill Tabled In The Rajya Sabha As Government Backs Financial Creditors

The Insolvency and Bankruptcy Code Amendment Bill was tabled in the Rajya Sabha recently.

Even as it tabled the Bill, the government came out in support of financial creditors and spelled out its concerns about extensive litigation causing undue delays in insolvency proceedings.

The government stated that delays due to “extensive litigation” may hamper value maximization, which goes against the spirit of the Insolvency and Bankruptcy Code (IBC) itself.

Significantly, the Bill has made a note of suggestions by various stakeholders that if creditors are treated on an equal footing, when they have different pre-insolvency entitlements, it would adversely impact the cost and availability of credit.

A specific provision has been added to the IBC stating that all dissenting financial creditors and operational creditors would receive an amount not less than the liquidation value of the corporate debtor or the amount in accordance of Section 53 of the IBC.

The Bill has proposed a time limit of 330 days for completion of the resolution process including the litigation. If the process is not completed within the time frame, the Bill has proposed passing “an order requiring the corporate debtor to be liquidated under clause (a) of sub-section (1) of section 33”.

The Bill provides for an explanation in the definition of “resolution plan” to clarify that a resolution plan proposing the insolvency resolution of corporate debtor as a going concern may include the provisions for corporate restructuring, including by way of merger, amalgamation and demerger.

The IBC amendment bill also clarified that the resolution plan will be binding on all stakeholders, including central and state government or local authority to whoever a debt is owed.

The amendments are expected to be approved by both houses of Parliament before it comes into effect.