BackMCA proposes changes to bankruptcy code for quicker corporate rescue
The ministry suggested ways for faster admission of cases in tribunals for initiation of bankruptcy process and for faster adoption of the revival plans stitched together by the stakeholders
PremiumNEW DELHI : The ministry of corporate affairs on Thursday proposed amendments to the Insolvency and Bankruptcy Code (IBC) to expedite the rescue of distressed companies ending up in bankruptcy tribunals.
In a consultation paper, the ministry suggested ways for faster admission of cases in tribunals for initiation of bankruptcy process and for faster adoption of the revival plans stitched together by the stakeholders. The ministry has given time till 13 January for receiving suggestions on the proposals.
Mint had reported on Monday that the government will hold a second round of public consultation starting this week to finalise amendments to the IBC after concluding the first round on 15 December.
One of the suggestions made by the government on Thursday is to amend IBC to provide a “a fixed time period for approval or rejection of" a corporate turnaround plan by the tribunal. The idea is to give tribunals 30 days for approving or rejecting a resolution plan that is submitted. If the revival plan is not approved or rejected within this time period, the tribunal has to record reasons in writing for the same. This timeline will be subject to the overall time period of 330 days specified in the Code for bankruptcy resolution.
The proposals also include suggestions for quicker admission of cases by tribunals. “Delays in admission are value destructive and hinder the chances of successful resolution," the ministry said in the consultation paper. Although IBC provides that tribunals should decide on applications for initiating bankruptcy proceedings within 14 days from receiving the application, its admission or rejection sometimes takes longer in practice, the ministry said.
Accordingly, the ministry suggested that lenders submit to tribunals only those records authenticated by certain official information utilities for initiating bankruptcy process. Authenticated financial information will speed up admission of cases. Where such authenticated information is not available to lenders, other documents can be used for establishing debtor’s payment default. “This will make the admission process significantly quicker and less cumbersome," the ministry said.
The proposals also include clarifications relating to checking certain transactions–called avoidance transactions—that will reduce the pool of assets available for resolution.
Experts said the proposed changes may be considered as learnings from the IBC experience so far. The process should be accessible to companies fallen on hard times, but should prevent promoters and directors to gain from the protections offered by the law in case of wilful defaults, explained Srinivasa Rao, partner and leader, risk advisory services, Nangia Andersen LLP, a consultancy. Another aspect that the IBC should actively strive to improve is about how not to become a bureaucratic process, said Rao. “The ease of resolution will also be determined how quick the process is without compromising on its efficiency," said Rao.
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