The Insolvency resolution proceedings are now going to take less time with a longer timeline. Confused? We were too. But with the new IBC amendments, the goal is to clarify the rights of the parties involved and speed-up the decision-making process. The goal of this article is to keep you updated with the new IBC amendments introduced to speed up the resolution process.
Insolvency and Bankruptcy Code was introduced in 2016 to an economy that was too comfortable with delaying the bankruptcy proceedings. This uncomfortable-comfort resulted in decades of court hearings where the debtors lost everything and still, the creditors got nothing. It was then that the introduction of IBC shook up the system. However, being new, it wasn’t perfect. That’s why, over the past 3 years, it has gone through 2 major amendments. Now it has emerged changed once again, with new IBC Amendments 2019.
Reasons behind introducing new IBC amendments
The government has given two reasons behind the approval of 7 out of 8 IBC amendments this year (2019). They are:
- To help with the decision making the process in resolution proceedings involving real-estate bankrupt entities like property developers.
- The corporate gaps in current insolvency laws are many. The new amendments are an attempt to fill them.
Insolvency laws have always come under fire due to not being clarified properly – resulting in many amendments to make it more appealing. The new laws focus on the same, albeit the goals now are more refined and practical.
7 Changes to IBC to make the resolution go faster
Following changes are meant to clarify the laws to all the parties involved, and speed-up the resolution process.
- Addition of additional restructuring schemes: The amendment makes room for the alternative debt restructuring plans like mergers, demergers, and amalgamations. Previous laws didn’t allow different restructuring plans – making liquidation almost always a certainty.
- Deadline extended for insolvency resolution: Previously, the timeline to resolve corporate insolvency was limited to 270 days – with an extension. It has now extended to 60 days – making the new timeframe 330 days. The new extension includes the time spent on judicial and litigation processes after plan submission.
- More power to COC: The Committee of Creditors (COC) now have the power to decide the way claims will be distributed as per the commercial consideration. Generally, there are only two types of creditors – financial and operational – making the distribution of credits only between these two. The amendment empowers the COC to decide claim distribution to all types of creditors after considering the commerce.
- Claim distribution is to be calculated in the same way as it is done during liquidation: The amendments now permit to calculate the distribution claims of resolution plan in a way similar to when it’s during liquidation. Ongoing cases will come under the same amendment – making it a retrospective amendment.
- Lender’s trustees can vote on the resolution plan: This change streamlines the process of resolution plan voting by the trustees/representatives of financial creditors. It also clarifies the way trustees vote on behalf of debenture holders (creditors who hold part of the debt).
- Resolution binding: The new amendments now hold the debtors including state and central government accountable for the corporate debts they owe through resolution binding. Meaning that even the government isn’t shielded from the resolution plan.
- COC can choose to liquidate anytime: COC now has the power to liquidate the corporate debtor even before the end of the deadline and the creation of insolvency resolution plan.
The 7 new amendments to the IBC appear to be an enigma. It provides more options for restructuring debt repayments and more time to the debtors while giving power to the COC to undo all their efforts. As the amendments are yet to be implemented, the resulting after-effects are yet to be seen.
Therefore it is imperative for you to notice them first. Stay tuned with Registrationwala for rapid analysis of the Insolvency and bankruptcy code so that you are always ready for the changes.