Amendments to insolvency legislation in Cabinet today

The Cabinet is likely to consider amendments to the Insolvency and Bankruptcy Code (IBC) on Wednesday. The government plans to promulgate an Ordinance to give effect to these changes since Parliament is not in session, sources said. A draft note circulated to various stakeholders says it is looking at treating homebuyers on a par with financial creditors in legal rights of insolvent firms. This was also a recommendation of a committee, set up to review the insolvency law, under the chairmanship of Corporate Affairs Secretary Injeti Srinivas. The panel had also suggested Section 29A in the insolvency law be made less stringent. It lists entities barred from bidding for companies under insolvency. The Centre is considering this proposal as well, sources said. The idea is to limit the prohibition to those directly involved with the company. Financial firms will not be treated as a related party. Earlier, via Ordinance, the government had debarred promoters with non-performing assets of more than a year, wilful defaulters and anyone associated with them from presenting a resolution plan during insolvency proceedings. This was to ensure promoters of companies undergoing insolvency resolution did not regain control. The planned Ordinance is also, it appears, to add a separate framework for micro, small and mediumsized enterprises. The committee suggested withdrawal of the fasttrack insolvency provision in the Act, which has a shorter period for resolution of insolvent cases. The provisions in this regard were notified with the intention of helping start-ups and small enterprises find a smooth exit. The government is not considering this suggestion, sources said.