Analysis of Recent Amendments in IBC

Analysis of Recent Amendments in IBC – The insolvency resolution process in India has in the past involved the simultaneous operation of several statutory instruments. These include the Sick Industrial Companies Act, 1985, the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, and the Companies Act, 2013.

Analysis of the 2018 Amendment

Analysis of Recent Amendments in IBC – The IBC was amended by the IBC (Second Amendment) Act, 2018 (“Second Amendment Act”) introducing the following changes:

1.  Reduction in the voting threshold of the CoC from 75% to 66% for certain key decisions such as appointment or replacement of resolution professionals, an extension of the insolvency resolution process, approval of resolution plan, etc.
2. Section 12A introduce, which provides for the withdrawal of an application seeking initiation of insolvency resolution after the same is admit the NCLT. The applicant can withdraw its application if at least 90% of the CoC provides its approval.
3. It has been clarified that the provisions of the Limitations Act, 1963 have been applicable to all proceedings and appeals made under IBC since the inception of the IBC.

• An explanation to the definition of ‘financial debt’ add, whereby any amount raised from allottees under a real estate project (including home buyers) will be considered financial debt. This implies that home buyers who were earlier put under the bracket of “other creditors”, will now be considered as financial creditors and can now be a part of the CoC.

Analysis of the 2020 Amendment

Analysis of Recent Amendments in IBC – The government has proposed at least 100 individuals or 10 percent of creditors such as homebuyers have to come together to initiate corporate insolvency proceedings under the amendments to the IBC. 

Adding a clause to Section 7 of the IBC, the Amendment Bill, tabled in the Lok Sabha has proposed to make this change retrospectively. It seeks to give 30 days for cases where a single homebuyer has taken a company to insolvency to comply with the revised criteria from the time of the commencement of the Act. 

The proposed threshold will apply in all cases where a financial debt is due to a class of creditors or is in the form of securities or deposits, and provides for appointing a trustee or agent to act as an authorized representative for all the financial creditors.

 The resolution professional also empowers the Bill to continue to manage the stress of the company even after the expiry of the corporate insolvency resolution period (CIRP), until an order approving the resolution plan or appointing a liquidator passes. This had become an issue in the case of Essar Steel, where the CIRP continued way beyond the 330-day deadline.

The resolution professional will allow starting insolvency proceedings against another corporate debtor to recover dues. The Bill also clarifies that the insolvency commencement date will treat as the date of admitting the CIRP application and the resolution professional will have to be appointed by the same date.