Recently the Parliament of India passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2019. The Bill brought the eight amendments to ensure that the law remains useful, vibrant and without interpretative ambiguities. This is the third time the government has brought the changes to the IBC since the law was first enacted in 2016.
The Bill provides for time-bound insolvency processes for companies and individuals. For initiating insolvency resolution processes, the Bill also provides for a financial creditor can apply to the National Company Law Tribunal (NCLT). In response, the NCLT is obliged to find the existence of default within two weeks.
After that, a Committee of Creditors (CoC) is formed consisting of financial creditors who are responsible for taking decisions regarding insolvency resolutions. The CoC is entitled to decide whether to liquidate the debtor’s assets or to restructure the debtor’s debt by preparing a resolution plan.
A resolution professional will be appointed by the CoC who is mandated to present a resolution plan to CoC. Afterwards, the CoC is obliged to approve that resolution plan, and the resolution process must be completed within 180 days. This period may be extended up to 90 days with the approval of NCLT.
If the CoC rejects the resolution plan, the debtor then will go for liquidation. In case of liquidation, the Code will provide an order of priority plan for the distribution of assets. In this plan, the operation creditors are behind financial creditors.
The 2018 Amendment made the home-buyers, who paid advances to home developers as financial creditors. The financial creditors will be represented by the NCLT appointed insolvency professional. It also ensures that the operational creditors receive an amount that must not be lesser than the amount that would receive in case of liquidation.
The provisions of the Bill would also apply to
i. The insolvency processes that have not been considered by the NCLT
ii. Those who have appealed to the National Company Appellate Tribunal or Supreme Court
iii. To those cases where legal proceedings have been initiated in any court against the decision of the NCLT.
In short, The Insolvency and Bankruptcy Code (Amendment) Bill, 2019 strengthens provisions related to time-limits. It also frames the minimum payoffs to the operational creditors in the resolution plan, and it also defines how the representative of a group of financial creditors should vote.