Cabinet clears ordinance on changes to Insolvency and Bankruptcy Code: Sources

The Union Cabinet has cleared the ordinance for making changes to the Insolvency and Bankruptcy Code (IBC), sources told CNBC-Tv18.

The ordinance for amending the bankruptcy code will be presented in the winter session of Parliament and will be tabled for approval in 6 months.

The IBC is likely to help in streamlining the process of selecting buyers for stressed assets. The number of cases under the Insolvency and Bankruptcy Code is rising and a 14-member panel was set up to identify and suggest ways to address issues faced in implementation of the law.

The code is aimed at preventing promoters who are wilful defaulters or have a history of fraud from buying companies cheap. But according to a news report, the amendment should not be seen as a blanket ban on promoters of companies who have been on banks’ non-performing account (NPA) list.

An important matter of concern is that the bankruptcy code does not currently specify the kind of buyers who can bid for stressed assets of companies that are undergoing bankruptcy proceedings. As a result, promoters could reacquire their companies at a discount once the lenders decide to sacrifice a part of the money they are owed.

The Indian Banks Association was seeking removal of Minimum Alternate Tax for new investors and had said that the imposition of MAT will depress bids. It was also seeking removing Liquidation Value Disclosure from the Information Memorandum.