So, now those debarred would include the ones who act with a common objective with promoters to seek control of the company concerned.
Also, the 14-member committee recommended that a list of offences be prepared and those guilty of any one of them be debarred from sending resolution plans. This would provide clarity to those willing to bid for insolvent companies
since the existing code debars offenders from submitting their bids, but does not specify offences.
There were apprehensions that subsidiaries of some prominent companies
facing conviction charges overseas would get disqualified. The panel addresses these fears.
The panel also exempted “pure play financial entities” from the scope of Section 29 (A). It suggested that those entities be defined in the code to clarify the scope of exemption. However, exemption should not be given if these financial entities are the related party of the defaulting promoter.
The panel also recommended retaining the 270-day deadline for the resolution of insolvent companies after its case was admitted by the National Company Law Tribunal.
There is a demand for relaxing the moratorium since the litigation initiated by various parties comes in the way of restructuring a company and delaying the process.
According to IBC norms, restructuring a company has to conclude within 180 days after an insolvency case has been admitted by the NCLT. This deadline can be extended by 90 days, after which no more extensions are permitted.
A company's assets will be liquidated after 270 days.
Starting April, 11 of the 12 cases referred to the NCLT after the Reserve Bank of India (RBI) asked banks to do so will be nearing the end of the 270-day period for presenting a resolution plan to the tribunal.
The recommendations will come into effect prospectively or for those cases whose resolution plans have not been submitted.
The panel also suggested treating homebuyers as financial creditors. This will allow them to equitably participate in an insolvency resolution process.
This recommendation was made due to the unique nature of financing in real estate projects and the treatment of homebuyers by the Supreme Court in ongoing cases.
The panel recommended that an insolvency process initiated by the promoters and a few others will have to be approved by 75 per cent of the shareholders or partners.
Corporate applicant means promoters, a member or partner of the company authorised to make the application of insolvency, an individual in charge of managing operations and resources of the company, or a person who has control and supervision over financial affairs of the company.
Most of the 400 cases going through the insolvency process are filed by corporate applicants only. Besides, lenders — both financial and operational such as vendor and employees — can also file for insolvency.
The committee also recommended relaxing the conditions for promoters of small and medium enterprises (SMEs). Only wilful defaulters will not be able to bid for these companies.
Micro enterprises have revenues of less than Rs 50 million; small enterprises Rs 50 million to Rs 750 million; and medium enterprises Rs 750 million to Rs 2.5 billion.
Experts said of the 300-odd SMEs undergoing insolvency proceedings, at least 200 would face liquidation with restrictions on promoters presenting resolution plans.
Ambiguity surrounding out-of-court settlements of insolvency cases, such as the ones faced by Binani Cement, was also addressed.
The panel recommended that the committee of creditors (CoC) concerned should be given the powers to make such a move if 90 per cent of its members are in favour of it even if the case has been sent to the NCLT. The committee also recommended against the fast-track insolvency provision under the IBC. The provision, applicable to start-ups and small companies, requires the resolution process to end in 90 days against 180 days in other cases.
It recommended doing away with a provision that considers financial creditors who are connected with the debtor company by virtue of converting their debt into equity a related party.
Also, for the passage of the resolution plan, the committee suggested reducing the threshold of voting for approving critical decisions from 75 per cent to 66 per cent. The critical decisions include extending the deadline for restructuring beyond 180 days, replacing resolution professionals, approving resolution plan, and approving liquidation. In other matters, 51 per cent of the votes is required. The committee, headed by Corporate Affairs Secretary Injeti Srinivas, was constituted to consider changes to the IBC.