“Overall the theme of the amendments proposed in the IBC
is to remove the hurdles being faced and to make it more attractive for investors,” said Manoj Kumar, partner, Corporate Professionals.
The government has not, however, as demanded by industry bodies, yet announced an increase in the overall threshold for a company — currently Rs 1 lakh — to be admitted to the corporate insolvency resolution process.
has taken a big step in providing a clean slate to buyers of stressed companies
by barring criminal proceedings such as attachment, seizure, or retention of property of such companies for offences committed before the initiation of insolvency proceedings.
The Amendment Bill has introduced clause 32A in this regard: “Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force … The corporate debtor (company undergoing insolvency) shall not be prosecuted for such an offence from the date the resolution plan is approved.”
Anshul Jain, partner, PwC India, said: “While this will be a great reprieve to successful bidders, the IBC itself cannot fix this issue … Other laws have to be amended accordingly to make the intent of this amendment felt.”
Addressing the concerns of interim or rescue financiers, the Bill has also expanded their definition of “any financial debt raised by the resolution professional during the insolvency resolution process period” by adding “… and such other debt as may be notified”.
In its statement of objects and reasons, the Bill stated, “A need was felt to give highest priority in repayment to last mile funding to corporate debtors to prevent insolvency…in case the company does land in that situation — to prevent potential abuse of the Code by certain classes of financial creditors.”
The Bill, while adding an explanation in Section 14, which deals with moratorium, licences, registrations, or clearances given by the government, shall not be terminated due to insolvency, subject to the condition that there is no default in paying current dues arising out of the use of the licence during the moratorium period.
While some experts said most companies under the IBC would not benefit from the clause because they did not have sufficient funds to pay their current dues, other felt differently. “This will preclude the need to reapply for licences and permissions and save the successful resolution application a lot of management time and overhead,” said Uday Bhansali, president, financial advisory, Deloitte India.
The resolution professional has also been empowered in the Bill to continue to manage the stressed company even after the expiry of the corporate insolvency resolution period (CIRP), until an order approving the resolution plan or appointing a liquidator is passed.
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 be allowed to start insolvency proceedings against another corporate debtor to recover dues.
The Bill has also clarified that the insolvency commencement date will be treated as the date of admitting the CIRP application and the resolution professional will have to be appointed by the same date.