Recently, the Government of India had proposed certain changes in the Insolvency and Bankruptcy Code 2016 as amended thereof (the Code) which have been passed by the Union Cabinet on 17-07-2019.
The said proposed amendments to the Code are as follows:
- That a time limit of 330 days has been fixed for bankruptcy resolution of a debtor company. Once the time limit expires, the corporate debtor would be liquidated.
- That the bankruptcy resolution or the liquidation of a corporate debtor, as the case may be, would have a binding effect on authorities including the central, state and local governments, to whom the bankrupt firm may owe dues.
- That there may be a clarity with regard to the position of financial and operational creditors in the order of priority for the purpose of distribution of sale proceeds after liquidation of debtor’s assets. Although the proposed amendments indicate primacy of secured financial creditors over operational creditors and unsecured financial creditors.
- That in cases where there are a large number of creditors such as homebuyers and bondholders, etc, if more than half of these creditors, present and voting in the CoC meeting, approve a resolution plan, it would be considered that the entire class of creditors has approved it. The said voting threshold of 50% has been brought down from the earlier 66% voting threshold.
In this way, these proposed amendments are aimed at facilitating decision-making in the case of bankrupt entities such as property developers, which have a large number of creditors, including homebuyers, and also, in ensuring a speedy resolution of insolvency and bankruptcy process.
Senior Legal Associate
The Indian Lawyer