Cabinet approves ordinance for amendments of insolvency and bankruptcy code

Cabinet approves ordinance for amendments of insolvency and bankruptcy code

The Code, which became operational in December past year, provides a market-determined and time-bound insolvency resolution process.

The President's nod for the ordinance is expected shortly.

Chairman and MD of JSW Group Sajjan Jindal had on Tuesday tweeted that it will be a set-back to the credible IBC process if the existing promoter re-acquires the asset with a haircut without Right of Recompense to Banks.

Given that the resolution process is moving along, it was important to clarify the stance of erstwhile promoters being allowed to participate in the resolution process.

Reports suggest that wilful defaulters will be barred from the auction. But according to a news report, the amendment should not be seen as a blanket ban on promoters of companies who have been on banks' non-performing account (NPA) list. The amendments to regulations (Regulation 37, 38 & 39) empower Committee of Creditor to carry out due diligence of resolution plan submitted with respect to the insolvency proceedings thereby bestowing them with the duty to assure that the most viable plan in the said regard is accepted.

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The Cabinet took the view that it is necessary to ensure that promotors of the corporate debtors who are found to have contributed to the default need to be prevented from regaining control of the company through backdoor entry in the garb of a resolution applicant.

Since the current law does not say anything about promoters of defaulting companies to regain control of the assets facing insolvency proceedings under the IBC, the amendment in the IBC could address this loophole.

The Insolvency and Bankruptcy Code, 2016, provides for time-bound "Insolvency Resolution" to release assets locked up in NPAs and promote maximisation of value of assets, failing which, underutilised resources of unviable business are released through liquidation.

Briefing reporters after the Cabinet meeting, Mr Jaitley said some changes are proposed in the Code and it is being done by way of an ordinance.