The President today (6 June 2018) gave assent to promulgate the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (Ordinance). Following are the key points to be noted as per the press release issued by the Government (Ministry of Corporate Affairs):
1. Home buyers as financial creditors. The Ordinance provides significant relief to home buyers by recognizing their status as financial creditors. This would give them due representation in the Committee of Creditors and make them an integral part of the decision making process. It will also enable home buyers to invoke Section 7 of the Insolvency and Bankruptcy Code, 2016 (Code) against errant developers.
2. Boost to MSME Sector. The Ordinance empowers the Government to provide Micro, Small and Medium Sector Enterprises (MSME), with a special dispensation under the Code. The immediate benefit it provides is that, it does not disqualify the promoter to bid for his enterprise undergoing corporate insolvency resolution process (CIRP) provided he is not a willful defaulter and does not attract other disqualifications not related to default. It also empowers the Central Government to allow further exemptions or modifications with respect to the MSME Sector, if required, in public interest.
3. Withdrawal allowed but with sanctions. The Ordinance lays down a strict procedure if an applicant wants to withdraw a case after its admission under the Code. Such withdrawal would be permissible only with the approval of the Committee of Creditors (COC) with 90% of the voting share. Furthermore, such withdrawal will only be permissible before publication of notice inviting Expressions of Interest.
4. Mandatory timelines. The Regulations will bring in further clarity by laying down mandatory timelines, processes and procedures for CIRP. Some of the specific issues that would be addressed include non-entertainment of late bids, no negotiation with the late bidders and a well laid down procedure for maximizing value of assets.
5. Voting threshold reduced to 66% from 75% for major decisions. The voting threshold has been brought down to 66% from 75% for all major decisions such as approval of resolution plan, extension of CIRP period, etc.
6. Voting threshold reduced to 51% for other decisions. In order to facilitate the corporate debtor to continue as a going concern during the CIRP, the voting threshold for routine decisions has been reduced to 51%.
7. Non-applicability of moratorium to guarantee. The Ordinance has made non-applicability of moratorium period to enforcement of guarantee.
8. Disqualification for resolution applicants relaxed. The existing Section 29(A) of the Code has been fine-tuned to exempt pure play financial entities from being disqualified on account of NPA. Similarly, a resolution application holding an NPA by virtue of acquiring it in the past under the Code, has been provided with a three-year cooling-off period, from the date of such acquisition.
9. Affidavit to ensure qualification for resolution applicant. The Ordinance provides that the Resolution Applicant shall submit an affidavit certifying its eligibility to bid. This places the primary onus on the resolution applicant to certify its eligibility.
10. Grace period of 1 year for implementation of the resolution plan. The Ordinance provides for a minimum one-year grace period for the successful resolution applicant to fulfill various statutory obligations required under different laws. This would go a long way in enabling the new management to successfully implement the resolution plan.
11. Representation in the COC through authorised representative. The Ordinance provides for a mechanism to allow participation of security holders, deposit holders and all other classes of financial creditors that exceed a certain number, in meetings of the COC, through the authorized representation.
12. Special resolution for Section 10 application. Requirement of special resolution for corporate debtors to themselves trigger insolvency resolution under the Code introduced.