INSOLVENCY AND BANKRUPTCY CODE BILL, 2019 (SECOND AMENDMENT)

In August 2019, the Insolvency and Bankruptcy Code Amendment bill had been passed in the Parliament with a view to resolving the issues related to insolvency and bankruptcy rules, regulations and procedures laid down under the Insolvency and Bankruptcy Code, 2016 (IBC). It was proposed to ensure adherence of timelines related to corporate insolvency resolution process (CIRP). To make further amendments in the IBC, a second bill had been introduced in the parliament. On 11th December 2019, the Union Cabinet approved the Insolvency and Bankruptcy Code Bill, 2019 (Second Amendment).

The bill had been introduced by the Union Cabinet headed by the Prime Minister Narendra Modi. It was proposed to eliminate lacunae and difficulties faced in the insolvency resolution process. The bill seeks to amend sections 5 (12), 5(15), 7, 11, 14, 16(1), 21(2), 23(1), 29A, 227, 239 and 240 of IBC, 2016. Insertion of a new section 32A in the Code has also been recommended. 

The main objective of the bill is to streamline the CIRP and to boost investment in financially troubled sections by protecting last-mile funding. The bill introduces additional thresholds for financial creditors and ensures that the essence of the business of corporate debtor stays intact and effectively continues by not terminating, suspending or terminating the licenses, permits, concessions, and clearances etc. during the moratorium period. It also protects ring-fencing corporate debtor by favouring successful resolution applicant from criminal proceedings against offences committed by previous managers.  

The Commencement date of insolvency

Proviso to clause 12 of section 5 of IBC stipulates that in cases where the interim resolution professional (IRP) is not appointed in accordance with the sections 7, 9 or 10 of the IBC, the commencement date of insolvency shall be the date of the appointment of IRP by the adjudicating authority. Section 2 of the Insolvency and Bankruptcy (Second Amendment) Bill proposes that this proviso be deleted and in all cases, the commencement date of insolvency should be the date on which the order initiating the CIRP process is passed. 
Section 16 of IBC is also amended by Section 6 of the bill to the effect that IRP shall be appointed by the adjudicating authority on the insolvency commencement date.

Thresholds for financial creditors under Insolvency and Bankruptcy Code

According to Section 3 of the Bill, there should be certain minimum thresholds for certain class of creditors who are filing applications seeking initiation of CIRP. Only the financial creditors mentioned under sub-section 6 of Section 21 of IBC are allowed to file seeking initiation of CIRP when the application is jointly filed by more than 100 hundred creditors in the same class or more than ten per cent of such creditors in the same class, whichever is less.

It has been proposed that these threshold limits should be applied on pending applications seeking initiation of CIRP by the above-mentioned class of creditors which are pending before the adjudicating authority before the commencement of the Insolvency and Bankruptcy Code (Second Amendment) Act, 2019.

Corporate debtor rights during the moratorium period

Section 4 of the bill adds an explanation to Section 11 of IBC stating that a corporate debtor disqualified under this section will not be prevented from initiating CIRP against another. Section 5 of the bill proposes that a license, permit registration, concession, clearances or grants obtained by a corporate debtor will not be suspended or terminated during the moratorium period on the grounds of insolvency.

Protection to Ring-fencing corporate debtors

Section 10 of the Bill proposes the introduction of Section 32A to IBC in order to protect the ring-fencing corporate debtor from prosecution of any offence committed prior to the commencement of CIRP. This immunity shall only be provided in cases where the ring-fencing corporate debtor was not a promoter or under management or control of the corporate debtor. Any action of seizure or attachment of property of the ring-fencing corporate, covered under resolution plan, will not be taken which results in a change of the corporate debtor or sale of liquidation of assets.

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Author:

eStartIndia Team