Promulgation of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (Important) (Download PDF)

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President promulgated Insolvency & Bankruptcy Code (Amendment) Ordinance, 2018 providing significant relief to home buyers by recognising them as financial creditors. Micro Small & Medium Enterprises (MSMEs) will now be exempted from all conditions. As per Section 29 of IBC Act, person or company suffering disqualification, can’t participate in resolution process.

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Provisions for Homebuyers: Biggest Beneficiaries of Ordinance

  • From now on, home buyers will have representation in Committee of Creditors & will be integral part of decision making process.

  • Homebuyers will have right to initiate resolution process against bankrupt real estate companies & get their money back.

  • It will enable home buyers to invoke Section 7 of Insolvency & Bankruptcy Code (IBC), 2016 against errant developers.

  • Biggest beneficiaries of this ordinance will be homebuyers as present version of IBC does not consider homebuyers as secured creditors; they have no right to initiate resolution process if real estate company goes bankrupt.

Provisions for Micro, Small & Medium Sector Enterprises (MSMEs)

  • Another major beneficiary of ordinance will be Micro, Small & Medium Sector Enterprises (MSME), which form backbone of Indian economy as biggest employer.

  • Considering importance of MSME Sector in terms of employment generation, Ordinance empowers Central Govt. to provide them w/special dispensation under IBC.

  • Ordinance does not disqualify promoter to bid for his enterprise undergoing Corporate Insolvency Resolution Process (CIRP), provided he is not wilful defaulter & does not attract other disqualifications not related to default.

  • It empowers Central Govt. to allow further exemptions w/respect to MSME Sector in public interest, if required.

Other Provisions for Insolvency & Bankruptcy Code (Amendment) Ordinance 2018

  • Committee of creditors’s voting rights of resolution plans will be limited to 66 % from earlier threshold of 75%, move that will help speed up resolution process.

  • In order to facilitate corporate debtor to continue as going concern during CIRP, voting threshold for routine decisions is reduced to 51%.

  • Withdrawal of insolvency application will be allowed, if 90 % of creditors agree.

  • Ordinance provides for mechanism to allow participation of security holders, deposit holders & all other classes of financial creditors that exceed certain number, in meetings of Committee of Creditors.

  • Section 29 (A) of IBC, 2016 is amended to exempt pure play financial entities from being disqualified on account of non-performing assets (NPA).

  • Taking into account wide range of disqualifications contained in Section 29 (A) of Code, Ordinance provides that Resolution Applicant shall submit affidavit certifying its eligibility to bid.

  • Promoters of companies w/turnover of up to Rs. 250 cr. will be allowed to bid. Earlier, they were barred from bidding as govt. feared that they will walk away w/stressed assets at discount.

  • Ordinance proposes to facilitate implementation of resolution plan by successful bidder.

  • It provides a year time to Resolution Applicant to obtain necessary statutory clearances from central, state & other authorities.

  • Other changes brought about by Ordinance include - non-applicability of moratorium period to enforcement of guarantee; & liberalising terms & conditions of interim finance to facilitate financing of corporate debtor.

Strict Procedure of Withdrawal Once Case is Registered under IBC 2016

  • To protect sanctity of Corporate Insolvency Resolution Process (CIRP), Ordinance lays down strict procedure if applicant wants to withdraw case after its admission under IBC 2016.

  • Such withdrawal would be permissible only w/approval of Committee of Creditors w/90 % of voting share.

  • There can be no withdrawal, once commercial process of inviting Expressions of Interest (EoI) & bids commences.

Significance of Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018

  • Ordinance is expected to further strengthen Insolvency Resolution Framework in country & produce better outcomes in terms of resolution as opposed to liquidation, time taken, cost incurred & recovery rate.

- Published/Last Modified on: August 21, 2018

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