Mumbai: The insolvency law committee on Monday recommended that the Insolvency and Bankruptcy Code (IBC) be amended to make eligibility requirements for bidders stricter and give lenders more flexibility in decision-making, said two people aware of the developments.
The panel, chaired by corporate affairs secretary Injeti Srinivas, recommended amendments to Section 29A of the IBC, which bars wilful defaulters, those with non-performing assets for over a year and people connected to these parties from bidding for stressed assets. The panel has suggested a change in the definition of connected party to include a person who along with a resolution applicant picks up an equity stake in the company facing insolvency.
“This person will be considered as connected person and won’t be eligible to bid for the assets. As per the current norms, connected persons include promoters, other key personnel and associated companies," said one of the two people cited earlier, both of whom asked not to be named. All these recommendations are prospective in nature and will have no bearing on the ongoing cases, the people said.
The panel has also recommended allowing promoters of medium, small and micro enterprises to submit resolution plans, provided they are not classified as wilful defaulters.
The panel suggested that if a financial creditor and resolution applicant are related parties, the financial creditor should recuse itself from voting on the resolution plan at the committee of creditors (CoC). However, it is eligible to submit a resolution plan.
The panel has also recommended easing rules on voting at the CoC meeting. Currently, all decisions of the CoC require approval of not less than 75% of creditors. The panel has now suggested that the requirement be relaxed to 66% of financial creditors for critical decisions and 51% in the case of routine decisions. Critical decisions have been defined as appointment or removal of resolution professional and approval or rejection of resolution plan.
The other recommendation is to bring homebuyers on a par with unsecured financial creditors, giving them a greater say in insolvency proceedings.
The panel has also suggested that creditors be allowed to initiate insolvency proceedings in cases which are undergoing winding-up petitions in a high court, provided they take the approval of the court. These recommendations, however, require parliamentary approval to come into effect.
“The prospective operation of these recommendations could have an impact on various stakeholders," said Ramesh Vaidyanathan, managing partner at law firm Advaya Legal.