Bankruptcy Code amended to bar defaulting promoters from buying back assets

The Parliament on Tuesday approved amendments to the Insolvency and Bankruptcy Code Bill to bar owners of defaulting firms from bidding to buy back assets when they are auctioned as part of bankruptcy proceedings.

As per the amendments, it is not necessary to disclose 'liquidation value' in the information memorandum. After the receipt of a resolution plan in accordance with the Insolvency and Bankruptcy Code, 2016, and the regulations, the resolution professional should provide the liquidation value to every member of the committee of creditors after obtaining an undertaking that such members maintain confidentiality of the liquidation value and do not use such value to cause an undue gain or undue loss to itself or any other person. The resolution professional should also maintain confidentiality of the liquidation value.

According to the amendments, a resolution applicant should submit the resolution plan to the resolution professional within the time given in the invitation for the resolution plans in accordance with the provisions of the Bankruptcy Code. This will enable the committee of creditors to close a resolution process as early as possible, subject to provisions in the Code and the regulations.

According to the regulations, a resolution plan needs to identify specific sources of funds to be used for paying the liquidation value due to dissenting creditors.

The amendments have come into force from Tuesday (2 January 2018) on its publication in the Gazette of India.

The government had earlier passed an executive order aiming to ''keep out such persons who have wilfully defaulted, are associated with non-performing assets, or are habitually non-compliant and, therefore, are likely to be a risk to successful resolution of insolvency of a company.''

Replying to adebate in the Rajya Sabha, finance minister Arun Jaitley said the proposed changes in rules are intended to help streamline the process of selecting buyers for stressed assets by excluding defaulters from taking over the management of companies after banks had taken losses on loans.

Several opposition lawmakers had expressed concern that the new rules could reduce competition for stressed assets and result in lower recoveries for creditors.

The Insolvency and Bankruptcy Board of India (IBBI) amended the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, and the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 on 31 December 2017.

The Reserve Bank of India (RBI) had, in June, ordered 12 of the country's biggest loan defaulters to be forced into bankruptcy courts as it tries to cut a record $147 billion of soured loans that have accumulated in the country's banking sector.