Cabinet approves amendments to India's insolvency and bankruptcy code
23 November 2017
The government has approved changes to the Insolvency and Bankruptcy Code that are designed to prevent wilful defaulters from bidding for stressed assets, finance minister Arun Jaitley said on Wednesday after a cabinet meeting.
The Insolvency and Bankruptcy Board of India amended regulations regarding Corporate Insolvency Resolution Process wherein it has stated that the resolution plans with respect to Section 30 and Section 31 of the Insolvency and Bankruptcy Code, 2016, will be required to contain details of the resolution applicant as well as the connected persons.
The amendments are aimed at barring wilful defaulters from buying stressed assets that they themselves had previously owned.
The amendments are required to prevent loan defaulters acquiring stressed assets at throwaway prices, defeating the very purpose of loan recovery by banks.
Banks in India are sitting on a record 9,50,000 crore ($147 billion) of stressed loans accumulated in the past few years and repayment of these loans could drive borrower companies into insolvency.
Under Indian law, wilful defaulters are classified as firms or individuals who own large businesses and deliberately avoid repayments.
The finance ministry has already asked banks to ensure that wilful defaulters are prevented from buying back assets.
The insolvency resolution of corporate persons in a time bound manner for maximisation of value of their assets is a key objective of the Insolvency and Bankruptcy Code and the Committee of Creditors is thus, expected to carry out due diligence of every resolution plan to satisfy itself that the plan is viable and further, the persons who have submitted the plan and who would implement the plan are credible, to avoid the plans which may lead to liquidation, post resolution, and to select the most suitable plan under the circumstances.5
As per the amended regulations, a resolution plan under the principal regulations shall contain details of the following persons to enable the committee to assess the credibility of such applicant and other connected persons to take a prudent decision while considering the resolution plan for its approval:
Persons who will be promoters or in management or control of the business of the corporate debtor during the implementation of the resolution plan and holding companies, subsidiary companies, associate companies and related parties of persons.
The details of the resolution plan shall disclose details of identity, convictions for any offence in the preceding five years, pending criminal proceedings, disqualifications under the Companies Act, 2013, identification as a willful defaulter by any bank or financial institution in accordance with the guidelines of the Reserve Bank of India, debarment, from accessing to, or trading in, securities markets under any order or directions of the Securities and Exchange Board of India, and lastly, the transactions, with the corporate debtor in the preceding two years.
Further, amendments also make it compulsory for the resolution professional to submit all resolution plans which comply with the requirements of the Code and regulations made thereunder, along with details of the following transactions to the Committee of Creditors.
It can be said that before the approval of the resolution plan which states how it has dealt with the interests of all stakeholders of the Corporate Debtor, the resolution applicants and connected persons will now be put under a strict test for ensuring their credit worthiness and credibility.