Experts are bullish on amendments proposed by the government to improve the Insolvency and Bankruptcy Code (IBC), saying the changes will likely help remove some bottlenecks in the process.
The government proposed changes to the code on January 18, seeking to enhance the efficiency of the bankruptcy process and expand the scope of the framework. It sought comments from the public by February 7.
The government said the changes being considered are in relation to the admission of corporate insolvency resolution process applications, streamlining of insolvency resolution, recasting of the liquidation process, and the role of service providers.
“The IBC mechanism, after amendments, will not remain a concern since all the amendments are being made to make the process more efficient and quicker. It is paramount to protect the interest of the stakeholders along with the financial creditors within the bounds of the IBC,” said Abhinay Sharma, managing partner at ASL Partners, a law firm.
Kumar Saurabh Singh, a partner at Khaitan & Co., said the proposal to take away the power of the corporate debtor to nominate the interim resolution professional will ensure control for the committee of creditors (CoC) from the onset, aiding the pace of resolution and avoiding delays.
Legal experts said the power to impose penalties for avoidable or roving litigations would also be a deterrent and help in the conclusion of the insolvency resolution process in a timebound manner. Overall, the changes proposed are timely and expected to remove uncertainties created over the past couple of years, which delayed the IBC process.
“The IBC amendment will also enable the government to introduce a cross-border resolution framework that can involve foreign banks and companies in the process,” Sharma said.
Also read: Insolvency resolution bids invited for Gayatri Projects after promoters failed to get relief
Electronic platform
The government proposes to create a state-of-the-art electronic platform to provide a case management system, automated processes to file applications, delivery of notices, and enable interaction of insolvency professionals with stakeholders, among others. This e-platform will ensure better exchange of information, greater transparency and facilitate effective decision-making.
“It would allow the regulators and the adjudicating authority to exercise better oversight and adjudicate on cases through consolidated information available on the proposed e-platform, which would assist in swift disposal of cases,” said Apoorva Bhadang, a partner at Vesta Legal.
Sharma said the platform will help in meeting deadlines and can curb the number of delays. For example, if this platform had existed during the COVID lockdown, corporate defaulters could have used it to seek relief under IBC.
Also read: Why do major IBC cases get delayed for years?
Real estate laws
To improve the outcome of real estate cases, the government has proposed that the bankruptcy process should apply only to specific projects affected by a default and not to other projects being developed by a builder.
The proposed approach will protect lenders and homebuyers in stressed projects, without any risk to other projects that the builder or corporate debtor may be developing.
“Project-based resolution will ensure that the concerns of stakeholders of the project – the primarily allottees of that project – are addressed as only stakeholders of that project will be involved in the project resolution as against involving all creditors of the corporate debtor, whether they are involved in the said project or not,” said Ajay Shaw, a partner at DSK Legal.
Amending Section 10
The proposed amendments will ensure that the appointment of the interim resolution professional, who oversees the affairs of a company during the resolution process, is transparent and that the IRP can work independently while holding the trust and confidence of the committee of creditors.
The government said in the notification that it proposed to amend Section 10 to delete the right of a corporate debtor to propose an IRP.
“The proposed amendment would ensure that the IRP appointed would not act in a manner prejudicial to the interest of any of the stakeholders,” said Bhadang.
“This amendment is going to restore the balance in favour of creditors, which tends to be challenged through IRP appointed at the instance of the CD,” Singh added.
Section 10, in its present form, has created a situation wherein the powers of the erstwhile management of the corporate debtor are suspended and vested with a person who is nominated by the very same management.
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