Cabinet approves ordinance to rejig bankruptcy laws
Seeks President’s approval to amend IBC; move likely to streamline process of selecting buyers of stressed assets
The Cabinet on Wednesday sought President’s approval for amending the Insolvency and Bankruptcy Code (IBC). This amendment is through an ordinance and will be placed before the Parliament in the winter session.
Finance minister Arun Jaitley did not divulge details about the changes being made to the Code, as it is yet to be approved by the President.
“Some changes are proposed to the IBC, since this is being done by an ordinance and till it is approved as a matter of propriety we dont give the details,” Jaitley told reporters at a press conference after the cabinet meeting.
Top sources in the government told HT that this amendment is likely to streamline the process of selecting buyers of stressed assets.
It is aimed at preventing promoters who are wilful defaulters and those with past records of fraud from buying stressed companies cheap.
Government officials added that the amendment should not be seen as a blanket ban on promoters of companies who have been on banks’ non-performing account (NPA) list.
“There might be promoters who have gone through the corporate resolution procedure and have managed to get their balance sheets in shape; they will not be kept out,” said one of the three.
IBC does not specify the buyers that can bid for stressed assets of companies that are undergoing bankruptcy proceedings. This has triggered concern that promoters could reacquire their companies at a discount once the lenders decide to sacrifice a part of the money they are owed.
“So there is the need to amend the law to ensure only deserving candidates are allowed to bid for stressed assets under the corporate resolution process,” said a second official.
The amendment is part of an effort spearheaded by the ministry of corporate affairs and the
NEW DELHI:
Insolvency and Bankruptcy Board of India to strengthen the IBC.
“The code is just a year old. So there is scope for improvement, and we will realise it as we go ahead..,” said the third official.
The code was strengthened on November 8 to streamline the due diligence process while choosing a buyer of stressed assets.
Credibility, financial strength, experience and track record are some of the factors that will be considered by the committee of creditors in disposing of a stressed asset that is up for sale.
The IBC came into force in which month 2016, and the first batch of 12 large defaulters were referred to their creditors by the Reserve Bank of India (RBI) in June 2017 for launch of bankruptcy proceedings at the National Company Law Tribunal. These 12 defaulters account for 25% of the total NPAs of banks.
Experts disagree with the government’s move to amend the IBC. “The committee of creditors has an enormous amount of commercial wisdom. So there should not be a prescription on the choice of buyers from the government, especially since a notification on due diligence while selecting a buyer has already been issued,” said Sumant Batra, an insolvency expert.