The President of India, on 23rd November, 2017 [Notification No. DL- (N)04/0007/2003-17], promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, which amends the existing Insolvency and Bankruptcy Code, 2016 (IBC), in order to strengthen the insolvency resolution process. A brief summary of some key amendments as per the Ordinance, is as follows:
- Duties of Resolution Professional: The insolvency professional, when inviting prospective resolution applicants to submit a resolution plan, is required to ensure that such applicant fulfills the requisite criteria as laid down by the Committee of Creditors, regarding the complexity and scale of operations of the business of the corporate debtor.
- Persons not eligible to be resolution applicants – To curb the possibility of defaulting promoters of ailing entities from submitting resolution plans that may in turn lead to them acquiring the concerned entity’s assets at low valuations, henceforth any person, whether acting alone or jointly with any person, who is a promoter or in the management or control of such person will not be eligible to submit a resolution plan in case:
(a) It is an undischarged insolvent;
(b) It has been identified as a willful defaulter as per the Banking Regulation Act, 1949;
(c) Its accounts have been classified as non-performing assets for more than a year and he has failed to make overdue payments relating to such non-performing assets;
(d) It has been convicted for any offence punishable with imprisonment for two years or more;
(e) It has been disqualified to act as a Director under Companies Act, 2013;
(f) It has been prohibited by SEBI for trading securities;
(g) It has indulged in preferential, undervalued or fraudulent transactions wherein an order has already been passed;
(h) It is a guarantor in favour of a creditor under the Corporate Insolvency Resolution Process or liquidation processes under IBC;
(i) It is a ‘connected person’ who meets any of the abovementioned criteria.
A connected person has been defined to mean any person who
(i) is a promoter or in the management or control of the resolution applicant;
(ii) who shall be a promoter or control of the business of the corporate debtor during the implementation of the plan;
(iii) The holding company, subsidiary company or related party of a person referred above.
(j) It is subject to any disability under any foreign laws.
- Submission of resolution plan: When considering the approval of a resolution plan, the Ordinance mandates the Committee of Creditors to consider the feasibility and viability of the plan.
Further, a resolution plan submitted before the commencement of the present Ordinance by a resolution applicant who is otherwise ineligible under the IBC, shall not be approved by the Committee of Creditors, therefore requiring invitation of fresh resolution plans from eligible resolution applicants.
- Powers and duties of liquidator: Henceforth, a liquidator is not to sell immovable land and movable property or actionable claims of the Corporate Debtor to persons otherwise not eligible to be resolution applicants. This amendment too is aimed at preventing defaulting promoters from acquiring distressed assets at low valuations.
- Punishment where no specific penalty or punishment is provided: Where any person contravenes any provision of IBC for which no punishment has otherwise been prescribed under IBC, such person shall be punishable with fine that may range between INR 1 Lakh and INR 2 Crores.