Budget 2022 | FM announces plan for strengthening IBC

Representative image.

Finance Minister Nirmala Sitharaman said while presenting the Union Budget 2022 on February 1 that changes have been proposed in the Insolvency and Bankruptcy Code (IBC) to enable seamless cross-border insolvency as well as quicker dispute resolution.

She said: "Necessary amendments will be made in the IBC for more efficient dispute resolution and enable cross-border insolvency resolution."

The changes will come about six years after the IBC was legislated that promised to institutionalise corporate restructuring through a modern, contemporary mechanism.

The proposed legislative changes, which will likely come through a series of amendments in the existing law, could also include a code of conduct for the committee of creditors (CoC), the group that is empowered to decide on insolvency resolution proposals.

Cross-border insolvency rules, once built into law, will allow lenders to recover dues from defaulting borrowers disposing of foreign assets as well promoters’ personal assets that are parked in offshore locations.

The new rules on IBC related to cross-border insolvency will be broadly framed on the lines of United Nations Commission on International Trade Law (Uncitral).

In an increasingly economically interdependent world, the importance of developing and maintaining a robust cross-border legal framework for the facilitation of international trade and investment is widely acknowledged.

The Uncitral plays a key role in developing that framework in pursuit of its mandate to further the progressive harmonisation and modernisation of the law of international trade.

Uncitral does this by preparing and promoting the use and adoption of legislative and non-legislative instruments in a number of key areas of commercial law.

Uncitral texts are developed through an international process involving a variety of participants. Uncitral membership is structured so as to be representative of different legal traditions and levels of economic development, and its procedures and working methods ensure that Uncitral texts are widely accepted as offering solutions appropriate to many countries at different stages of economic development.

To implement its mandate and to facilitate the exchange of ideas and information, Uncitral maintains close links with international and regional organisations, both inter-governmental and non-governmental, that are active participants in the work programme of Uncitral and in the field of international trade and commercial law.

According to them, the cross-border legislation will be broadly in line with the international model law provided by the Uncitral that lays down a basic framework for cooperation between domestic and foreign courts.

Some changes to the corporate insolvency resolution process (CIRP) under the IBC will also include measures to make it more robust and to cut delays so that it could prevent further erosion of the value of stressed firms.

The new law could also include a code of conduct for the Committee of Creditors to usher in more transparency in the insolvency process