THE INSOLVENCY AND BANKRUPTCY CODE (SECOND AMENDMENT) BILL, 2019

inbatv Articles, India, Legal Reforms

Smt. Nirmala Sitharaman, Minister of Finance and Corporate Affairs introduced in Lok Sabha on 12th December 2019, a bill to further to amend the Insolvency and Bankruptcy Code, 2016, known as THE INSOLVENCY AND BANKRUPTCY CODE (SECOND AMENDMENT) BILL, 2019. It is Bill No. 376 of 2019.

Its objective is to remove the difficulties that the corporate citizens have been facing for long such as insolvency commencement dates, interim finance, application by financial creditors, moratorium and other such issues. The amendment will have retrospective impact to the extent possible and shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint, even with respect to different provisions of the act.

The bill omits Section 5, clause 12 of the Act, which provided that the “insolvency commencement date” shall be the date of admission of an application for initiating corporate insolvency resolution process by the NCLT. It also adds the words “and such other debt as may be notified” in clause (15), after the words “during the insolvency resolution process period” to widen the scope of Interim Finance. Interim Finance is also colloquially referred to as last mile funding and is classified as ‘Insolvency Resolution Process Cost'(‘IRPC’) by the IBC.

The bill inserts various minimum threshold under Sub section (1) of Section 7 of the principal act which have to be met before an application to initiate insolvency proceeding is made to the NCLT. The Bill proposes that an insolvency application in relation to a real estate project must be filed by a minimum of 100 allottees or not less than 10% of the total number of allottees, whichever is lesser. Similarly, if a trustee or agent of financial creditors holding securities and securities files an insolvency application,  it has to represent the instructions of such minimum number of financial creditors.

As per amendment proposed in Section 11 of the principal act, a corporate debtor may initiate Corporate Insolvency Resolution Process against another corporate debtor even if  such corporate debtors are undergoing an insolvency resolution process or have completed the resolution process 12 months before making the application. Also the corporate debtors or financial creditors who have violated terms of the resolution plan or corporate debtors in respect of whom a liquidation order has been passed, may initiate Corporate Insolvency Resolution Process against another such corporate debtor.

Section 14 of the principal act will not suspend or terminate any existing license, permit, registration, quota, concession, or clearance, given by the government or local authority, on the grounds of insolvency, now onwards. It however puts the condition that there should be no default in payment of current dues for the use or continuation of such grants.

The amendment provides for appointment of interim resolution professional on the insolvency commencement date against the original Section 16 which provided for the appointment within fourteen days from the insolvency commencement date.

As per amendment to Section 21(2), conditions on which a financial creditor shall not be considered to be a related party of the corporate debtor have been widened, bestowing on the government the right to provide the right to prescribe such transactions on completion of which a Financial Creditor may not be considered as a related party.

The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019 has amended Section 23 of the original act and clarifies that the affairs of the Corporate Debtor during the time-gap between the period of conclusion of Corporate Insolvency Resolution Process and implementation of the successful resolution plan/ commencement of liquidation shall now be the responsibility of the Resolution Professional only.

Section 29A of the Principal Act has been amended to insert various new explanations to its provisions. Such conditions provides for Conditions on which a financial creditor shall not be considered to be a related party of the corporate debtor have been widened, bestowing on the government the right to provide the right to prescribe such transactions on completion of which a FC may not be considered as a related party.

A new section, Section 32A has been inserted, which washes out the liability of corporate debtor in respect of offences committed prior to the commencement of Corporate Insolvency Resolution Process, however subject to conditions.

The Conditions are as follows:

  • Cessation of liability of the corporate debtor in respect of an offence committee prior to the commencement of corporate insolvency resolution process,
  • Prohibition on any action against any property of the corporate debtor covered under the resolution plan,
  • Requirement from the corporate debtor and other persons to extend assistance and co-operation to any investigating authority, notwithstanding the immunity granted as above.

Insertion of explanations to Section 227 through the amendment clarifies that the insolvency and liquidation proceedings for financial service providers or categories of financial service providers may be conducted with such modifications and in such manner as may be prescribed.

Insertion of various clauses to Section 239 of the original act empowers the Central Government to set out of rules with respect to the changes as provided for in the Amendment Bill. The Central Government, can now, by way of rules, prescribe, the transactions on completion of which the Financial Creditors will not be treated as related party of Corporate Debtor.

The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019 inserts a new clause after clause (i) in sub-section (2) in Section 240. The board may, by notification, make regulations and provide for circumstances in which supply of critical goods or services may be terminated, suspended or interrupted during the period of moratorium under subsection (2A) of section 14 of the Insolvency and Bankruptcy Code of India, 2016.

—

MANISH GOYAL

INBA INTERN