In order to strengthen India's insolvency framework, the government has been mulling upon a series of amendments to the Insolvency and Bankruptcy Code (IBC) 2.0 since last year.
The amendments include expanding the pre-pack insolvency framework to larger companies, group insolvency, time-bound admission process, etc.
Whether the upcoming budget will finally propose the amendments to the IBC to address critical gaps to ensure the timely resolution of distressed assets, remains to be seen.
“The amendments to the IBC have been in the works. Inter-ministerial discussions have been held. The amendments were with the law ministry to be finalised,” a senior government official told Moneycontrol.
Public comments on the proposed IBC amendments were sought in January 2023.
The amendments are likely to include redesigning the fast-track corporate insolvency resolution process to permit financial creditors to drive the insolvency resolution process for a corporate debtor outside of the judicial process.
This will be done while retaining some involvement of the adjudicating authority to improve the legal certainty of the final outcome. Insolvency resolution through this procedure will be available for corporate debtors with such asset size as notified by the central government.
Pre-pack insolvency for larger companies: The government is looking to expand the scope of the pre-packaged insolvency resolution process for larger companies, beyond the current applicability to MSMEs (Micro, Small, and Medium Enterprises). This aims to provide a quicker and more cost-effective resolution process for stressed assets.
Group insolvency: Amendments to facilitate group insolvency are being considered. This would allow for the consolidated resolution of insolvency proceedings for corporate groups, thereby simplifying the process and improving outcomes.
Reduction in time in admitting cases: The actual time taken at the time of admission of a case into NCLT is currently up to 600 days due to the challenge of establishing the validity of loans.
To speed up the process under the IBC, public sector banks have asked the corporate affairs ministry to use the NeSL repository to establish the validity of loans.
If implemented, this could reduce the time taken for admission to NCLT significantly. NeSL is a government company which serves as a repository of evidence on debts. Currently, the financial debt is proved from documents such as the balance sheet and the TDS deductions.
Individual insolvency: Strengthening the insolvency resolution framework for individuals, especially for guarantors of corporate debtors, to ensure a comprehensive approach to insolvency may be on the cards.
Cross-border insolvency: It will cover circumstances in which an insolvent debtor has assets in more than one country. Typically, domestic laws prescribe procedures for identifying and locating the debtors’ assets and converting them and later distributing them to creditors. However, there are various insolvency cases in which corporations owe assets and liabilities in more than one country.
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